New Mountain’s Steve Klinsky: The distribution backlog is a timing issue, not a PE issue

Speaker A: Hello, my name is Stefan Pauls and I am the CEO and founder of Moonfair. Welcome to Dealtalk where we bring you face to face with the top minds in private equity. Moonfair is the largest digital platform for investing in private equity. We offer carefully curated funds with remarkable loan. Joining our community of world class investors is free and only takes a few minutes. @moonfair.com we do this to give more investors direct access to one of the most attractive global asset classes. With our Dealtalk webinars we aim to democratize access to the knowledge surrounding it. Enjoy. Hello, my name is Steffen Powelts and I'm the founder and CEO of Moonfair. Welcome to Dealtalk, our series where I interview some of the best deal makers in the private equity industry. Our guest today helped build private equity from the ground up. Steve Klinsky co founded Goldman Sachs first ever buyout group in 1981 when the industry was still in its infancy. He went afterwards to become a senior partner at Forstman Little, another pioneering private equity firm and had a front row seat at one of the most famous private equity deals in Wall street's history. The KKR, uh, acquisition of RJA Nabisco. In 1999 Steve started his own firm, New Mountain Capital. The idea was simple, that real value creation means building better businesses and not loading tons of debt on an asset. Results speak for themselves. Since inception New mountain has generated 112 billion in company value with a loss rate of only 0.2%. I believe this is a track record very few in the industry can match. Steve, it's an enormous pleasure to have you today at Dealtalk, here live in Berlin. And thanks for joining us.

Speaker B: Thank you, thanks for having me.

Speaker A: We talked about it. I spent quite a bit of my career with kkr, so obviously I've been very familiar with barbarians at the gate. And what happened in the 80s, um, which was by the way one of the toughest economic periods of the 20th century. Um, we had stagflation, uh, stock prices were down, uh, high rates of unemployment and so on. Do you think uh, you would be a different investor today if you had started your firm in today's environment with low interest rates and booming uh, economy?

Speaker B: Well, you know, it's a great uh, it's a great experience to go through many different economic cycles. So as you're saying, uh, when I joined in 1981, I came to Wall Street 10-1-1981. The highest rates in US history were the day before I started work 10 year treasury was 15.84%. Stock market was lower than it had been in 1968. And so starting from there, uh, I've been able to see the whole kind of film about private equity. And it just gives you lots of experiences.

Speaker A: Look, staying in the 80s. And uh, I said that, uh, you had a front row seat, um, and you appear in Babin's at the Gate, uh, a book that I personally read five times or so. First time at business school. It tells the story, um, about how kkr, uh, finally took over RJR and Nabisco with massive amounts of debt. Um, you worked for Forstman Little at that point in time. Were also partially, uh, interested in the. Then pulled out. Uh, finally. How do we remember those times and how much did it, and maybe in particular this battle. How much did it influence your investment philosophy?

Speaker B: Yeah, it was a very, you know, when we went through it, it was around 1987 or 1988. I had already spent time starting Goldman's group and then had moved over to Forsman. And people forget how small the world was back then. When I went to Forstman, uh, in 84 there were only 20 private equity firms in the world. KKR was the largest in the world with 400 million of assets. Foresman was the second biggest in the world with 220. And I think KKR had eight people and Foresman had five people. So it was more like two competing basketball teams than what it is today. And uh, RGR Nabisco was the 19th largest company on the stock market. It was a $36 billion deal in that period, which would be like a $400 billion deal that. And uh, it was just an exceptional period. I can talk more about it, but it was a very unique. You knew you were in financial history at the time, you were working on it. And I can talk more about my experience with it.

Speaker A: Look, one thing that impressed me personally and uh, obviously I met Henry and George is the fact that they turned down a breakup fee. They got offered this famous breakup fee. I think it was 50 million or so US dollar which is an enormous amount of money obviously, but even more so today. And they were not worthy at that point in time or not yet that worthy. And they said no. Uh, tells a lot about how they think. Look, you back to you. You founded New Mountain in 1999. So you came a bit later, but still very early to the game. Was, um, it a good starting, uh, in terms of timing?

Speaker B: Was it 1999? It was a terrible time to start Uh, I had had a great 20 years at Goldman Sachs and at Forster Little. I had just finished a company at Force Little called General Instrument, which was one of the first great technology buyouts. Went from a billion of value to 20 billion. And I left to start New Mountain. And I went out to investors and said, I can get you a 30% return. And they said that's terrible because if I invest in papercups.com, you know, the first generation Internet was starting, I can make 1,000% return. So I said, well, I can't give you 1,000% return. So everyone was very excited about the initial. If I own the name of the website, I will become a billionaire. And so it was very hard to start then. And then by the time my fundraising was finished, all those companies had crashed and they said, now we have no money to invest in you. So it was uh, a hard time to start. But my first deal, uh, went very, very well out of the blocks and they knew if they came into my fund they could invest in it at the original price. So I got started. But not because of good economic conditions.

Speaker A: No, for sure not. Look, one thing that sets you and you mountain apart is that you are predominantly investing in very resilient businesses and businesses that are less dependent on how the overall economy is doing. Uh, the words you used are, uh, ah, cyclical and defensive growth. What are you looking in particular for when you are acquiring companies or when you consider to acquire them?

Speaker B: Yeah, so again by starting in 81, I lived through the 87 crash, the 88 recession, the 1990 fall of junk bonds, the Asian crashes and Soviet crashes in the 90s. Uh, so, and there's, even when times are good, there's always going to be bad news if you hold a company for five or 10 years. So the main thing is to have an industry. It's like building your house on solid ground. You want to be in an industry that can do well whether times are good or bad. We call those defensive growth industries. And then if you have a good safe company and a good safe industry and don't over lever it, if you have a problem, you can go in and fix it. And the way you make money is by then adding value and improving that company. So it's defensive growth and business building and we can talk about examples of what those industries are, but it's just a fundamentally logical way to uh, approach private equity.

Speaker A: Yeah, look, again with that philosophy, uh, you were uh, very early and spot on. Henry Kravitz, famous quote, early 2000, he said financial engineering is dead. So he got it then the entire uh, call it wave of value creation, uh, operational improvement, um, and three levers, uh, multiple expansion, um, um, leverage and then EBITDA expansion became really the core leverage. How to uh, create value in a company. What is your new mountain specific approach to value creation? And maybe also what sets you apart from, apart from others in the industry.

Speaker B: Yeah. So uh, our typical deal might be 500 or 600 million in size earning 50 or 60 million. But in a good industry like we've been buying infrastructure services companies and uh, our goal is to build it to be three or four times multiple. Uh we only use about four times debt to EBITDA on average. But by growing the organic business itself, doing add on acquisitions, we always have two questions in investment committee that the team has to convince the full firm of Question one, is the investment safe? Should we make roughly a double even if the world goes bad? But question two, is there a true fighting plan to make a third 30% gross return or better? And we have 300 people at my firm. KCare used to be eight, enforcement used to be five. I have 300 at my firm plus 80 more operating partners. That would make it 380 plus. We employ 133,000 people at our companies. We would be 52 in the Fortune 500. We take all that knowledge and strength into a mid market company and the ways to build it. There's 20 different ways to build businesses. It's let's improve the management, let's uh, change the sales force, let's look at the pricing, let's look at procurement. It's not one little trick. Um, but we have very specific business building plans when we enter every company that we buy.

Speaker A: And it was new territory. Look at KKR build out uh, KKR Capstone, then Bain Capital did stuff, et cetera. But they applied it to relatively large companies where probably the impact is uh, more difficult to get. And if you apply the same playbook in the mid market segment it is much much more M. I think that's,

Speaker B: that's a very astute statement. So you know I say it's easier to go from 500 to 2 billion than it is to go from 10 billion to 40 billion. There's many more people to sell to when you're looking to sell. And at 500 million average size it could be a great niche leader. But there's probably many things the founder never had a chance to do. Or so that is our major emphasis area. Sometimes we buy larger companies but uh, we like the mid market.

Speaker A: Look, I told you, uh, before, and I just came from New York where I had lunch with one of the most famous hedge fund managers on earth and we had a talk around AI, of course, and I was a little bit provocative and asking him, aren't you not missing the opportunity by just playing public markets? Now the analogy question here for you is in light of your defensive approach, uh, you're probably less, um, investing into, um, high, uh, growth sectors like software, um, at least in the past, uh, or like computing as another example. Is there sometimes a feeling that you say, oh, we are missing here something, or do you say, no, my conviction is clear, it stays the same and the world around can change, but I stay my calls.

Speaker B: Well, uh, I think it's a somewhat different answer to either of those two. We talk about defensive growth. So we're very focused on growth, but we want to start with a safe base and add technology to it. So, um, you know, for example, we had a company started by the head of biostatistics at MIT and the head of biostatistics at Harvard. And there was a venture capital company, there was a standalone. Instead of investing in that VC standalone, we bought it as an add on to the base we already had. Now you have cash flow, you have customers, you have management. And the VC play could do much better built off of that stable platform than if, uh, it had no cash flow and was just trying to survive on its own. So we add tech upside to the companies we buy and we're playing all these themes like we have the biggest force of fear in the data centers that grew about 50% organically last year, uh, but has no capex needs and we own it for about 12 times EBITDA. So we're growing very fast with AI and data centers, but not by, you know, without the risk of some other ways to play that same idea.

Speaker A: Got it. Look, post financial crisis it was probably relatively easy to make money. Uh, again, a quote from Henry. He said every fool could, could make money in these days. Cheap money out there, uh, relatively, um, okay. Ish. Then post, uh, financial crisis, um, growth, uh, came back, et cetera. We are living in an obviously totally different world. Uh, we have this trend towards strategic autonomy plays a huge role now with the independence from Europe, geopolitically, uh, from the U.S. we have the war battle, um, between AI, a battle in particular between China and the U.S. uh, we have wars obviously out there, uh, and I dare to say it's probably the most difficult, uh, time to be an investor These days, how are you thinking about um, investing under such an uncertainty and how are you etching the risks that are associated with uncertainty?

Speaker B: Yeah, uh, again, uh, there are certain sectors of the economy that are much more insulated from those type of shocks. Those are the defensive growth sectors. We have 12 and we keep evolving the list over time through a formal process. But we have 12 sectors staked out with 25 subsectors. So again, take a sector like uh, infrastructure services. Despite all the issues you're talking about, there's a pretty clear long term trend. We're going to need more electric power in the United States. So we built up, uh, we just built up and sold a leading electrical engineering firm called qualys for Fund 6 and just sold it. Now we've gone back and Fund 7 went small again for another super high quality base. Same management coming over, same skills and we'll build that up again. So despite all the uncertainty of the world, the electrical engineering industry has not slowed down. Uh, and I can give you multiple examples of that. So, so what we're trying to find, it's a little bit private equity to me is a little bit like if you have super skilled carpenters and you buy a house on solid ground and you have great carpenters, they can fix the house, they can make it better and you will build value. We think of ourselves as a business that builds business, not a deal shop, not a leverage shop. And we control risk and build companies. Risk doesn't create return, business building creates return.

Speaker A: Bill Gates once told me, um, he was asked, um, by a group of people I was attending um, the session with him, in simple words how he built such an incredible company and became then finally a multi billion guy. And his answer was I was not looking ahead like 10 years ahead, I was looking five years ahead. And others were just looking three years ahead. Today when we have AI and I would dare to say there are very, very few people who can foresee the implications of AI and the impact of AI, uh, on I would say close to say any industry that's out there. How do you cope with it? Uh, because when we are honest, many software investors were caught on the wrong foot by AI. There are write downs. We had the Citrini report uh, coming out earlier this year. 300 billion wipe out in public market software companies. So what is your approach to call it? Foreseeing the future?

Speaker B: Yeah, well first of all we try to avoid the areas where if you said I'll pay you 75 cents if it's heads and you lose 25 cents. If it's tails, we will not take that bet. If we could do it a million times in a row, we would take that bet. But if there's a sector where the, there's a major question which way it's going to go, we would rather avoid that question. Again, will there be a need for electric power with AI or without? Yes. So if you can be the best at that, you can be the best at that. And we do that in a whole range of ways. And what we really do, as I tried to say before, is take a stable base and add technology to it. I've been through many technology transitions since in high school. We used slide rules, then computers came in, then personal computers, then the Internet, then the cloud, now AI. And what I've seen is the incumbent in a normal space that has the customers, has the sales force, has the earnings, if they're aggressive, can usually add the new technology to their business. We're adding AI tools to our companies. We're using AI to make business process by business process more efficient. But it's not someone in a garage who can necessarily do everything we do unless we're brain dead and just sit there, uh, passively. So the goal is to adopt the technology into your business both offensively and defensively.

Speaker A: Uh, I couldn't agree more. When you think about what's happening, we are reading the news of a next AI company reaching 1 billion valuation, next one raising 200 million and you ask yourself what is really the moat, uh, also compared to the incumbents, the sales forces, the saps and others, uh, then many of those companies that are currently hyped in the agentic world have really no reason for being, and I'm betting a good bottle of wine on it, that many, uh, if not 90% of these companies will disappear. And that's probably also expressed in your conviction. If you invest into AI or AI closed businesses, then you invest in the infrastructure stack as you have done so with your data center.

Speaker B: That's one way we do it. But to give you other examples of, uh, how we use AI, we have a company that tracks all the hazardous materials and thousands of products and does all the regulatory filings around the world. Now with AI, they can track the regulations in 160 countries more quickly than they used to. And if something changes in Malaysia, they can immediately use AI to notify Proctor and gamble on their product that day. But if you didn't have the base business and the thousands of filings and all the relationships, you couldn't add that AI feature. Uh, so it's not a question of one or the other. In most cases it's the incumbent can use AI to make itself better. Uh, we also have companies like Bounteous that's just been chosen by Anthropic as one of their 50 channel partners to help other people use AI. We own grant Thornton which is helping its clients implement AI and do the return on investment calculations on their use of AI. So it's not, I don't think it's a simple AI wins in the garage or the other company wins without AI. That's a very false choice.

Speaker A: Look, my conviction anyway is that the distinction between AI companies and non companies is artificial because it will be everything an AI enabled company, well it'd be

Speaker B: like when computers came in if you were someone who didn't had adding machines. If you didn't add computers you would be out of business. But uh, when the cloud came in, if you didn't use the cloud, you're less efficient. So I mean it's just the question of you want. And one of the things private equity can do for the normal mid market company is be more skilled at adding those tools than the founder would have been on his own. Because we're doing it for 30 or 40 companies and learning best methods and we can help that company adopt more quickly than it could have on its own. When we talk about building great businesses and adding value, that's another example of it.

Speaker A: Yeah, look, it's probably one of the biggest themes currently for at least new starting firms in private equity. These holding companies which take some capital, then they do consolidation in the structure and then they have a framework of AI that the individual company couldn't afford and they roll it out.

Speaker B: Yeah, that's right. For individual portfolio companies they can very roll up the little moms and pops. But even for that company, it's learning from what the PE owner of 40 companies can learn by having worked across 40 companies and cross hatching the best methods of all 40 to help that one, much less beat the mom and pop in their own industry. So again, you know, I say private equity has become a form of business, not a form of finance. And I think private equity is one of the highest forms of business building because we don't just succeed once in our lives, we're supposed to do it again and again and again and again, company after company. That's why it's an intellectually fun industry as well as you know, and if you're good at it, it's good for everybody.

Speaker A: This is what we have in common. This is why we are both in private equity and I used to be with kkr. Look, there's another topic and moving away M from AI which is on top of minds uh, at super return other places I was at CNBC in the morning show and basically the journalists were grilling me around. Is there a credit crisis, uh, out there? Uh, I know you are in a slightly different uh, camp but what would you answer uh, if you got asked in whatever, CBB or wherever, is there a credit crisis, uh, or a risk of credit crisis?

Speaker B: And my firm has five asset classes so we have a major credit arm that we've had. We started after Lehman brothers went bankrupt in 08 when prices were very low. So we are very involved in credit. Uh, uh, I think the saaspocalypse is very much overstated for credit. You know there are public companies and public credit companies trading way below book value because they lent to software companies and they may be 30 cents. They uh, may be six times debt, uh six times EBITDA with 14 parts equity underneath them. Now the equity may be worth less because multiples may be lower for software companies but that doesn't mean the debt is not money good. And I swear. So I think there were deals bought in 21 that people paid too much for and there will be a bad vintage of those deals but I don't think it's a general credit crisis. And for my own company, New Mountain Finance Co. I've been a buyer of shares and that's a public record that I've been. We trade below book value these days and I've been a major buyer.

Speaker A: It's pretty much the same. What I answered, uh, I said it depends on uh, what is lacking uh, in the current discussions and the press media titles is the uh, level of differentiation, uh uh, what kind of business is it, when is the maturity, how is the capital structure, et cetera.

Speaker B: And also there are software companies that have data moats and other special things. If you're just a single point application that could be done by AI, uh agents and then you're in a bad spot. Spot. But most companies are much larger, more complex than that.

Speaker A: Steve, what do you think about the following? Uh, because it is a bit of a concern I have a lot of the growth in uh, private credit in particular in recent years has been driven by this incredible success and emergence of um, evergreen structures. Uh and uh, if there is, you know, if you could call something a crisis, then currently we might face in certain instances a liquidity crisis because of all these gating issues. We had Blue Oil, we had the kkrs, Blackstone Partners Group, uh, big issue even in the uh, private equity. On the private equity side of things, uh, do you um, think that the system is not working for in particular retail investors because they don't understand that these products are not for fully liquid?

Speaker B: Well, I recently wrote an op ed on this, uh, more for the regulators to read. And what I was trying to explain to them is, uh, if private credit had not been invented, the regulators would want to invent it. Because banks are inherently, uh, lend, borrow short and lend long and they're always subject to bank runs. That's why you need FDIC insurance and the Fed to step in private credit shops, uh, like a permanent credit. They're either permanent credit or they have the gates. They're much less levered than the 10 to 1 of the banks. They're usually 1 to 1 levered. The BDCs are permanent capital. There's no run on the bank at all. And then for the ones that are the evergreen structure, the terms were just set up. Hey, 20% of the money can go out each year. And if you're the one who wants to redeem, you can get 100% of your money. And in the worst case you're getting 20% of your money. So that's not some emergency improvisation. Those were the set terms. It's like if you buy a five year cd, you get a higher rate, but there's a penalty if you pull out early. And private credit offers much more than you get on bank deposits. And in the worst case of panic, and it's kind of a irrational panic, you get your 20% out each year. And so those were just the terms of the deal. That wasn't like, oh, we're gonna now stop you. I mean that was explicit. Like a five year cd, if you pull it in one day, there's a penalty for it. So I don't know if the consumers understood it properly or not. They should. Uh, we, um, have a private credit called New Credit and a private net lease called New Lease. We're very creative on our naming, we're genius namers and we haven't had to lower any gates. But it's clear that those are the terms that people invested in.

Speaker A: Look, I don't think that anybody would doubt that in clear English it was written in the prospectus and gating and redemptions, et cetera. Um, what I'm more concerned about is whether it was really explained in clean English. In simple words, uh, to the end client who is not a sophisticated person. Private equity investor.

Speaker B: Well, you know, uh, I'm sure it was explained. I'm not sure people focused on it. And it also only happens in very, very unusual circumstances of a form of market panic. So it would have been like telling a bank depositor in the old days. I just want you to know, if there's a bank run on the bank and everybody pulls out, you could lose all your money tomorrow. I mean, they don't like, you know, so. And this is, this is the way to avoid bank runs. This is the rational answer of how to manage a panic. And even in a panic, you're within the rules and people are getting their money out and so forth. So that's in the worst case. In normal environments, people do have full liquidity because less than 20% redeem every year. And hopefully people are more aware of it now and all that.

Speaker A: Look, Berlin's airport is full with moonfare billboards asking where's the exit? And the industry still, as uh, people discussed at Super Return and is still suffering from a lack of distribution. So DPI is still one of the core topics, um, in particular LPs are concerned about. You at New Mountain have an incredible track record in terms of returning capital. But what do you think? What is missing? Uh, there? We have pretty hefty IPO markets, we have stock markets are high multiplied are relatively high. Why is the money not coming back to investors?

Speaker B: Yeah, well, again on New Mountain, and I don't want to advertise my firm too much, we have had very good cash back, including this year. Uh, for private equity in general. I don't think it's inherent to the private equity space. I think, you know, the companies that are bought in 21 are the companies that would normally be selling right now. And the world has changed so drastically that people paid prices in 21 which are, which they could the same multiple they can't get today. So they're, you know, they, they and it always looks like the, the clouds are about to pass. Like I've been in meetings with bankers. This is going to be the greatest year for exits of all time. And then the Iran war starts and we'll wait till that's over. So, uh, I think what you're seeing is a, is an issue of how crazy 21 was with 0 interest rates, certain, uh, demands from COVID No one thinking about AI or those type of issues. You might, you have a class that's kind of stuck. But companies being bought now May be some of the best buys ever six years from now. So it's a, I think it's a, it's a timing issue on a set of companies, not a general issue about private equity.

Speaker A: We have mega IPOs ahead. It's anthropic. Recently, um, OpenAI announced its IPO. We have the filing and um, the IPO from SpaceX, et cetera. Will it help the industry, uh, in terms of. Because these are massive distributions, uh, after the lockup that will come back to uh, institutional investors. Will it help the private equity industry as well? Or uh, are uh, these more concentrated with very special pockets?

Speaker B: Just because I like to live through history, I Lithuania and abisko I went to the SpaceX roadshow. I'm neither buying nor shorting SpaceX. To me it's a phenomena totally unrelated for good or ill. It's totally unrelated to I think normal IPOs of traditional companies. So I don't really, uh, I don't know how it's going to impact private equity exits. It's kind of a thing to itself, but historically fascinating.

Speaker A: But staying with the stock markets, One thing we are hearing, and the stock markets obviously had an incredible one, high volatility, but incredible one. And you uh, know, NASDAQ producing 20% plus, et cetera, fully liquid en vogue with the topics around AI, et cetera. Do you think that poses um, a challenge to the private equity industry, uh, in terms of, you know, being competitive when it comes to how well the

Speaker B: stock market's doing because they had wounds away. Yeah, no, I understand. If you look at uh, you know, over five years, 10 years, 20 years, 30 years, I think private equity, the average private equity firm has outperformed the stock market. The best private equity firms have far outperformed the stock market in current conditions. When you have seven companies growing at exceptional rates based on, you know, it's. Again, when I was going out to raise my original private equity fund and said, people said 30%. That's terrible because I could buy sockpuppet.com. i mean, yes, there are times you will be, uh, better look good. Now the question is, even in those times. So let's say we're the second best asset class to uh, the stock market. Not the first best. Uh, we're still a diversifier. There's less volatility. As a big institution or an individual, do you want to have all your money tied up in seven stocks that can wildly go up or wildly go down? I mean, if uh, there's an article Today, OpenAI is cutting price uh, if pricing per compute unit goes down, do uh, you want to have all your money based on that one factor? So I think there's a great use for private equity. There's thousands of private companies, there's firms that are very good at building and adding value to those companies. Companies which is a very responsible asset class and a great diversifier. Even if we're second best, we have been first best. But even if we're second best there's a huge reason for it. And the key is that it's a form of business to build businesses, not just levering an index which I never think it should have been thought that way.

Speaker A: Yeah, look I'm so much with you investing short term and then you have here win and there a great ipo. That's good and fine but that's not a strategy for 20 years to, to bid us.

Speaker B: Uh, it's hard to expect that this rate of income in the stock market will go on for every year for the next 20 years. Compounding uh, all the records. If you read the analysts when it's this good it usually returns slow down for the stock market from these points. But I don't know if that's true either. But even if the stock market is good, private equity has a real purpose in itself and is a great I think business class in itself if you do it properly.

Speaker A: Yeah, look, if you look at the Data on the 20 year horizon, private equity top quartile funds have always beaten and if you compound it and compounding exactly.

Speaker B: Put your earnings back in. It's extraordinary.

Speaker A: Um, and it's diversification as you.

Speaker B: Well that's my point. So let's say we were 1% lower than the stock market. There's been five years when the stock market's been down according to Hamilton Lane did I've seen there's never been five years with the private equity markets down. And how much do you want to bet? I mean Elon may be right, he may be right, he may not be right. Are you going to bet everything on uh, uh, what the market TAM is in 2040. I mean that's not easy to bet everything on those type of variables. So it's nice to have and bonds or your bank deposits are very low returns. So here's something that is another way to make high equity returns without being over concentrated in a few stocks.

Speaker A: Look, you're right. And then think about the opportunity set in private markets. 90% of all US companies with a revenue over 100 million on private hands.

Speaker B: That's exactly right.

Speaker A: The number of IPOs is going down. So if you want to keep a very small, very concentrated opportunity, said it's fine, it just should. But that should not be your only strategy.

Speaker B: And I hope everything works and all these IPOs work, but there's still, uh, other ways to make money, to diversify. So you're not counting everything on good news.

Speaker A: Well, I told you I came in from New York this morning, was talking to a few really smart US investors and obviously I was asking them about Europe and they took a very skeptical view on Europe. Uh, energy prices, data center, infrastructure, AI nowhere. That was the quote, um, the um, political disorder, uh, in many countries, high dependency, third party countries. What do you think about Europe? Is it a playing field, an investment field for you, or do you say, look, uh, I avoid it wherever I go?

Speaker B: Well, uh, we focus on US headquartered companies because we want to be very close with the management, really work with them. And so we bought a few companies in London because their big growth market was the US but we're not trying to plant teams around the world. Uh, so that's how we invest. And I think the US continues to be just a very attractive market because it's pro business, it's innovative, we have, have all sorts of advantages. So we don't really need to move offshore right now. We do take our US businesses. We're very sensitive. It's a big world. And one of the ways to grow these mid market companies is expand international sales and so forth. But we're not trying to buy a business in another country just to say we did it.

Speaker A: Look, you know that moonfair stands for, call it a promise to, uh, investors, which is really opening up private equity to uh, a broader call it audience. We have many, many family offices that use us, and what they like about us is our very rigorous selection process. Uh, we look at 500 investment opportunities in a given year. Only 20, so less than 5% make it to the platform in 95% of all cases. Obviously not with your fund. Uh, but we say no. Uh, and I heard that you are also thinking, yeah, that's generally a good development. But we need clear guardrails for those investors. What are those for you?

Speaker B: Well, that's exactly right. So I've also been the chair of the private equity of America called the American Investment Council. So I do believe private equity and 401k plans and for retail investors make sense. The most sophisticated investors around the world use it for themselves. It's clearly a good asset class, but the guardrails are I think there are 5,000 private equity funds. You don't want grandma telemarketed by the wolf of Wall street who says I'm the great fund and takes her money. So if you do the job of identifying a good fund from a bad fund is a very sophisticated, difficult task. Uh, if Moonfair is good at it, or Fidelity or Vanguard, I think someone has to be selecting that these are good funds to choose from, not just whoever telemarkets more gets the money.

Speaker A: Absolutely true. Because everything what we've said is only true if you manage to get access to the top quartile funds. You can't and you should not buy an index. Uh, in private equity, if you buy an index, you're better off in the public markets. Look, Steve, we are unfortunately almost at the end of our conversation, but I want to ask you a few personal questions so that our audience can, uh, learn and understand a little bit better the person who is behind, um, you, um, as an investor and as an incredible entrepreneur, uh, you are known as someone who loves to read books. And we talked about Bob Irons at the Gates, which had a big impact, uh, on my thinking. What books have most defined your thinking as an investor?

Speaker B: You know, to tell you the truth, I'm not the one reading the specific investment books. I read a huge amount of history of all periods. And I find that. I find human nature and how people work together and respond to crises being. Everything's an example of the next thing. So I'm a huge history fan. I read a lot of science and technology just to try to understand what's going on. So, you know, I'll read books about AI so that I'm just trying to. I'm trying to figure out where the world's going all the time. And, uh, so as an investor, those would be the most useful type of books.

Speaker A: And is there. Then let me ask, if it's not a specific book, is there a particular investor some people mentioned? Warren Buffett or a business leader? It could be. Who has truly inspired you and changed your thinking about the world?

Speaker B: Well, I have, I have. You know, it's very interesting when I hire people, when I'm interviewing the new associates, uh, I'm giving away my interview tools now Forever watches this. But after going through the normal question, I always ask them two questions. What do you read? And who. Whose name I might recognize do you most admire? Because I'm looking for intellectual curiosity and breadth. And whoever they most admire reflects their own value system. So those are the questions. And if you Ask me who do I most admire? I mean, if it was not a famous person, it would be my father, who was a businessman and incredibly, uh, and my mother. I had great family, but as public figures I would cite and it's a little corny, people like George Washington, Winston Churchill, Abraham Lincoln. Those are the sort of people that I really admire versus any specific business leader. And they're obviously great business leaders out there, but they're not the ones who, uh, um, really set to me the major example of life.

Speaker A: When you mention these people. Is it because you admire their non consensual thinking?

Speaker B: No. Like what I admire about George Washington is he could have made himself king of America. He kept his ego down. He always tried to do the right thing. They call him the indispensable, indispensable man. And you know, a lot of books in American history say we never would have gotten through the revolution or got the. So I mean, it's just a person like that is a great role model, uh, you know, so versus a particular businessman who had one good business in his life, you know, so I like, uh. So I have lots of people I admire. But, uh, that would probably be the answer I would give you if you asked me what public figure do I most admire.

Speaker A: And see one final question, which I like personally. But I also have to ask you this because my children, my four children are expecting me to ask this one, which is, what advice would you give your younger self? Same. Let's. In your early 20s in today's world.

Speaker B: Uh, you know, I have four children as well, and they're 22 to 29. And one's graduating this weekend when I fly home. I'm going to her graduation.

Speaker A: You have publicly.

Speaker B: Well, I don't really want my advice. So first thing, it's nice that your children want your advice because mine's, uh, dad, you know, so my only real my advice to them and my advice to myself, I guess, would be, you know, there's lots of great ways to live your life, but do something that's productive, fulfilling, don't waste it. I don't try to push my kids to go into private equity. I just want them to do something productive. And. And a lot of them were saying to me, dad, you did private equity. We're doing our own thing. And I got lucky that private equity. I say my parents were so smart to give birth to me in the year they did because I came in right as the stock market was under 1,000, about to take off from there. So they were so smart on their timing. But try hard, be a good person, try to be productive in the world,

Speaker A: uh, and you would make a way

Speaker B: and hope you get little good of good fortune and luck as well.

Speaker A: Look Steve, this has been a fascinating conversation. Thank you so much for your time. You've got given us and hopefully the audience a lot to think about. I'm sure our audience, uh, has enjoyed it as much as I did today.

Speaker B: Thank you. Thanks so much for having me.

Speaker A: No, really, thank you so much for joining us and for our audience. Thank you, uh, for being with us, uh, for listening into um, the Deal Talks series. Uh, if you haven't, uh, done so, make sure you register or visit on moonfair.com um, it helps you, um, to get to know and be aware of the next Deal Talks. But also, um, if you're an accredited investor, you can take a look what kind of offerings we have. White papers, how we think about the future, many topics we touched upon, our ah, education section and otherwise. Otherwise, uh, I wish you all the best and stay healthy.

Speaker B: Sa.