Ted Seides: Private Equity Deals: Lessons in investing, dealmaking, and operations from private equity professionals
Oct 28, 2024
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Ted Seides, a renowned podcaster and bestselling author, explores the world of private equity and its transformative impact on businesses. He discusses the critical role of aligning incentives for success and how private equity managers influence about 10,000 businesses. Ted challenges negative media portrayals, highlighting that private equity offers unique decision-making advantages. He emphasizes employee ownership as a catalyst for performance and introduces the concept of permanent equity, advocating for a broader definition of success that prioritizes fulfillment in work.
Aligning incentives in private equity is crucial for creating long-term value and driving successful outcomes in investments.
Private equity managers control a vast portion of the economy by owning approximately 10,000 businesses, highlighting their significant influence.
The evolution of private equity emphasizes operational excellence over short-term financial gains, signaling a shift towards sustainable business growth.
Deep dives
Early Career and Influences
The guest recounts starting his career right out of college with traditional Wall Street interviews, while simultaneously interviewing at Yale's Investments Office, where he landed a position under David Swenson. David Swenson, who was well known for his innovative, evidence-based investing approach, had a profound impact on the guest, who learned investment principles grounded in first philosophies. This experience not only provided valuable lessons but also fostered practical application, allowing the guest to live out these investment strategies firsthand. The foundation laid during this time set the stage for understanding key asset classes and investment strategies, further shaping his career trajectory in finance and investment.
Understanding Private Equity
Private equity is described as ownership of entire businesses, contrasting public markets where investors own shares with fluctuating daily prices. The podcast discusses how private equity gained prominence through leveraged buyouts in the 1980s, wherein general partners (GPs) would purchase businesses using minimal equity and borrowed capital. The conversation highlights the rise of private equity post-financial crisis, showcasing its effectiveness in accumulating capital and its growing influence in the economy. As of now, private equity managers own thousands of businesses across various sectors, emphasizing the need for a deeper understanding given their substantial economic impact.
Value Creation in Ownership
The guest emphasizes the different phases in private equity, namely purchase, ownership, and exit, underscoring the importance of each phase in creating value. During ownership, private equity firms have the control necessary to implement significant changes, like improving operational efficiency or driving revenue growth. Various approaches, such as retaining existing management or integrating operational partners, can maximize business performance. Effective ownership strategies can lead to high returns and demonstrate the importance of measuring success beyond mere financial gains.
Employee Engagement and Ownership
Engagement at the employee level is brought to the forefront through the example of KKR's Pete Stavros, who advocates for distributing business ownership down to employees in manufacturing settings. This approach empowers employees by making them stakeholders in the business, fostering commitment and driving performance improvements. The podcast discusses how this model not only drives productivity but can also lead to significant financial returns for both the firm and employees. The success story of CHI Overhead Doors is highlighted, which illustrates how participation from all levels of a company can result in substantial financial benefits.
The Changing Landscape of Private Equity
The podcast discusses the evolution of private equity, particularly the shift from heavy reliance on financial engineering to a focus on operational excellence and collaboration within management teams. The guest points out that increased competition and capital inflow have driven prices up, making it imperative for firms to adapt and find new ways to add value. The exploration of permanent capital models, like Brent B. Shore's Permanent Equity, indicates a potential future trend in the industry, allowing for longer-term ownership horizons and more sustainable business growth. This shift reflects a broader understanding of investment success, extending beyond short-term financial metrics and aiming for meaningful, long-lasting impacts.
Ted Seides emphasizes the importance of aligning incentives in private equity.
Private equity managers own a significant portion of the economy, around 10,000 businesses.
The media often portrays private equity negatively, focusing on failures rather than successes.
Private equity allows for more control and decision-making compared to public markets. The evolution of private equity has led to increased competition and higher prices.
Employee ownership can drive business success and improve performance.
The investment horizon in private equity is typically three to five years, but some firms seek to hold longer.
Different owners bring unique expertise to businesses at various stages of growth. Permanent capital structures could change the landscape of private equity investing.
Success is defined personally, focusing on fulfillment and enjoyment in work.
Podcast Program – Disclosure Statement
Blue Infinitas Capital, LLC is a registered investment adviser and the opinions expressed by the Firm’s employees and podcast guests on this show are their own and do not reflect the opinions of Blue Infinitas Capital, LLC. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed.
Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
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