Latest / Masters in Business / Mario Giannini on the Art of Investing (Podcast)

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Mario Giannini on the Art of Investing (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
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Speaker 1: This week on the podcast, Yes, I have an extra
0:10
Speaker 1: special guest. His name is Mario Giannini, and he is
0:13
Speaker 1: the CEO of private equity giant Hamilton's Lane. They oversee
0:20
Speaker 1: or manage over five hundred billion dollars in assets. I
0:24
Speaker 1: kind of feel like this is one of those people
0:28
Speaker 1: that the average person in the industry doesn't really know,
0:32
Speaker 1: and yet they're quite important, quite influential, and move around
0:37
Speaker 1: a whole lot of capital. His background is that of
0:42
Speaker 1: a bankruptcy lawyer turned private equity investor, and he really
0:47
Speaker 1: has just a fascinating um history. There aren't a whole
0:53
Speaker 1: lot of people who are more knowledgeable about the ins
0:57
Speaker 1: and outs of private equity, buyout for ms UM, distress debt,
1:03
Speaker 1: a whole run of different h fixed income private on
1:06
Speaker 1: the private side. Really just a really informative, really knowledgeable guy.
1:11
Speaker 1: I found this to be an utterly fascinating conversation, and
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Speaker 1: I think you will also so, with no further ado,
1:18
Speaker 1: My conversation with Hamilton's Lanes Mario Jannini Vias is Masters
1:25
Speaker 1: in Business with Barry Ridholts on Bloomberg Radio My special
1:31
Speaker 1: guest today is Mario Janey. He is the CEO of
1:34
Speaker 1: Hamilton's Lane, one of the largest private equity firms in
1:38
Speaker 1: the world. He joined the firm in two years after
1:42
Speaker 1: it was founded in Philadelphia. The company is publicly traded
1:46
Speaker 1: with a market cap of three point five billion dollars
1:50
Speaker 1: and overseas over five hundred billion dollars in investments, including
1:56
Speaker 1: sixty eight billion dollars in discretionary assets under management. Janini
2:00
Speaker 1: was named as one of c i o's Knowledge Broker
2:04
Speaker 1: All Stars. Mario Jannini, Welcome to Bloomberg. Thank you. So
2:11
Speaker 1: before Hamilton's Lane was making private investments, you were advising
2:15
Speaker 1: companies on them. Tell us a little bit about your
2:18
Speaker 1: your work history. I started out as a lawyer UM
2:22
Speaker 1: and was singularly unsuccessful at that and really branched off
2:27
Speaker 1: into because I came out of the bankruptcy side of
2:31
Speaker 1: the legal world and really went into basically turning companies
2:36
Speaker 1: around UM And at one point had sold a company
2:41
Speaker 1: and I knew someone that had invested in Hamilton Lane
2:44
Speaker 1: and they said you ought to go over there and
2:46
Speaker 1: take a look. And I really thought I was just
2:47
Speaker 1: going to spend a few months and find another company
2:51
Speaker 1: to buy and never left. I was like the bad
2:53
Speaker 1: penny that that stays. I couldn't get rid of you.
2:56
Speaker 1: So I have to imagine that having a bankruptcy back
3:00
Speaker 1: round gives you very specific insight into what companies can
3:04
Speaker 1: be turned around and what really just needs to be liquidated. Yeah,
3:09
Speaker 1: I think the bankruptcy background helped in that You're You're
3:11
Speaker 1: absolutely right. It gives you an idea of what can
3:13
Speaker 1: go wrong. I think that's the part that that I
3:17
Speaker 1: took away was what can happen at companies, whether it's
3:20
Speaker 1: companies were investing in or at Hamilton Lane, What leads
3:23
Speaker 1: companies to go into a bad place? And then what
3:25
Speaker 1: do you do with them, like you said, when they're
3:27
Speaker 1: in that place. So it was very helpful from that perspective.
3:30
Speaker 1: So tell us a little bit about Hamilton's Lanes business lines.
3:34
Speaker 1: Who are your clients and what sort of investments do
3:37
Speaker 1: you tend to consider? Well, our business lines is basically
3:41
Speaker 1: we invest in our clients or anyone that is looking
3:44
Speaker 1: to be investing in the private markets, whether it's private equity,
3:48
Speaker 1: private debt, real estate, real assets, any of the column liquids,
3:52
Speaker 1: the alternative markets, and we look at investments in all
3:56
Speaker 1: of those different parts, and we help clients develop portfull
4:00
Speaker 1: as we help clients choose investments both on an advisory
4:03
Speaker 1: basis and on a discretionary basis, depending on how they
4:06
Speaker 1: want to work with us. And the clients are global,
4:09
Speaker 1: you know, it's about the business about clients are US
4:12
Speaker 1: and are non US, So it's a it's a diversified
4:16
Speaker 1: client based different types of clients, pension funds, high net worths,
4:20
Speaker 1: um everything in between. UH and it really, as I said,
4:24
Speaker 1: covers the whole range of the of the private markets.
4:27
Speaker 1: We look at that buyouts, we look at venture capital.
4:30
Speaker 1: I would say the largest part of our business is
4:33
Speaker 1: the private equity side UM as compared to credit or
4:36
Speaker 1: real assets, but those are, as you know, in the
4:39
Speaker 1: private world, increasingly larger parts of it. And in the
4:42
Speaker 1: private equity part, I would say it is mostly buyout,
4:47
Speaker 1: growth capital, a little bit of venture um. And in
4:50
Speaker 1: terms of geography, in terms of where we invest, it's
4:53
Speaker 1: probably six US, Europe and then the rest of the
4:58
Speaker 1: world accounts for the rest. So I mentioned earlier, you
5:02
Speaker 1: have sixty eight billion dollars in assets under management that
5:05
Speaker 1: are discretionary and that you have either advisory or supervisory
5:10
Speaker 1: management over the nets let's call it four hundred and
5:13
Speaker 1: fifty billion dollars. I know I'm going to get questions
5:17
Speaker 1: about that, so let me just pass them along to you.
5:20
Speaker 1: What is the difference between discretionary assets under management and
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Speaker 1: the balance of the assets that you were either supervising
5:28
Speaker 1: or advising on. Yeah, the difference is essentially who who
5:32
Speaker 1: controls the final decision. So with the discretionary assets under management,
5:37
Speaker 1: somebody gives Hamilton Lane a dollar a euro again and
5:41
Speaker 1: says you invest that for us. You make all the choices,
5:44
Speaker 1: you decide where you want to put it, which investments
5:47
Speaker 1: you want to put it in, and it's it's completely
5:49
Speaker 1: up to you. On the advisory or assets under advisement,
5:54
Speaker 1: however they're they're phrased there, we're working with the clients.
5:57
Speaker 1: So the client will say anything like go find the
6:00
Speaker 1: best buy up fund, bring it back to us and
6:04
Speaker 1: recommend it to us, and we will make the final decision,
6:08
Speaker 1: or we work collaboratively. But in the advisement or advisory
6:11
Speaker 1: part of the business, we don't have the final say.
6:14
Speaker 1: Is it is really the client that makes that final determination,
6:17
Speaker 1: and it maybe on our recommendation it maybe just on
6:20
Speaker 1: our bringing five funds and they pick one of them. Um,
6:23
Speaker 1: it depends on how we work with them. But that's
6:25
Speaker 1: the essential differences. Who makes that final call. Is there
6:29
Speaker 1: any real difference between assets under discretionary management or assets
6:34
Speaker 1: under advisement. There's no specific difference. I mean, there may
6:38
Speaker 1: be a difference in terms of what a specific client
6:41
Speaker 1: is looking for. So if a client is asking us
6:43
Speaker 1: to look at only large buyouts, um, then sure that's
6:47
Speaker 1: all we're looking at for them. But in terms of
6:49
Speaker 1: the analysis, in terms of looking at you know, which
6:52
Speaker 1: are the best investments? Why are they the best? The
6:54
Speaker 1: analysis is the same, and it really comes down to
6:57
Speaker 1: then you know, how does it fit in the port folio.
7:00
Speaker 1: And there again it's either our decision in terms of
7:03
Speaker 1: our discretion, we make the decision, or it's the client's
7:07
Speaker 1: decision in terms of saying, I know you love that fund,
7:10
Speaker 1: but it doesn't fit for X, y Z reason that
7:13
Speaker 1: we're determining. But the analysis is the same. There's been
7:16
Speaker 1: some criticism about performance reporting in some private markets I
7:21
Speaker 1: r R in particular, what's the best way for private
7:26
Speaker 1: markets to report investment performance? Yeah, there really is a
7:31
Speaker 1: lot of criticism about I r R, and I think
7:33
Speaker 1: it's it's misplaced, honestly. I mean, obviously I'm in private equity,
7:36
Speaker 1: so I'm going to say, well, it's misplaced. But it's
7:39
Speaker 1: not that hard to do private equity on an I
7:42
Speaker 1: r R or a t w R a time way
7:44
Speaker 1: to return, which is how most asset classes are are judged.
7:47
Speaker 1: And so this whole notion that I r R is misleading.
7:52
Speaker 1: It is one measure. The problem with private equity, unlike
7:55
Speaker 1: the public markets is in the public park is if
7:58
Speaker 1: I give you a taller to invest, you go invested
8:00
Speaker 1: in the In the public markets, you invested all at
8:03
Speaker 1: once and it stays in there. In private equity, if
8:06
Speaker 1: it's a dollar, you commit a dollar and then I
8:08
Speaker 1: invests you know, periodically, it's it doesn't go in all
8:12
Speaker 1: at the same time. And so all the I r
8:14
Speaker 1: R is is a measure of trying to figure out
8:17
Speaker 1: how to determine performance when you're not taking all the
8:20
Speaker 1: money at once and investing it at once. And it's
8:23
Speaker 1: just one measure. And we have a lot of clients
8:25
Speaker 1: that use I r R and then use t w R.
8:27
Speaker 1: They use different different ways of measuring performance. So yeah,
8:32
Speaker 1: if you're using our our alone, it can be a
8:34
Speaker 1: little hard to then compare it to your other asset classes.
8:39
Speaker 1: But most people don't do that. They really compare it
8:42
Speaker 1: in a number of different ways. So I wouldn't be
8:44
Speaker 1: too exercised about this whole h R R debate. So
8:48
Speaker 1: one of the things we've been hearing is that the
8:51
Speaker 1: public markets have gotten price. Fixed income is yielding practically zero,
8:58
Speaker 1: and that is creating a lot of opportunity and competition
9:03
Speaker 1: in the private space. Tell us a little bit about
9:05
Speaker 1: what you see in the private equity markets, and for
9:09
Speaker 1: you that includes the debt markets as well. Yeah, I'll
9:12
Speaker 1: look at it from two perspectives. One is from the
9:15
Speaker 1: one you alluded to, which is, um, we're seeing a
9:19
Speaker 1: whole lot of interest in the private markets, um, and
9:22
Speaker 1: it's driven by the factors you cited. Let's talk about credit.
9:25
Speaker 1: For example, in the credit markets, if you're a public
9:29
Speaker 1: credit investor, you're getting lousy returns. I mean, they're just
9:33
Speaker 1: historically they're very low, and so it drives you to
9:37
Speaker 1: look at private credit because the returns are so much
9:39
Speaker 1: higher than they are on the public side. And frankly,
9:42
Speaker 1: there's on the private credit side, there's a huge amount
9:45
Speaker 1: of opportunity because when you look at where the public
9:48
Speaker 1: markets provide credit, it's too larger companies, and private credit
9:51
Speaker 1: tends to provide two smaller companies. So there's a big
9:55
Speaker 1: opportunity set there. And with banks having left that market
9:59
Speaker 1: after the Great Financial Crisis, there's there's just a lot
10:02
Speaker 1: of space for private credit to grow. On the equity side,
10:06
Speaker 1: private equity, you have the same factors at work that
10:09
Speaker 1: you have in the public markets. Evaluations are really high
10:12
Speaker 1: um and there's a lot of competition for deals. With
10:15
Speaker 1: that said, you look at the number of private companies
10:18
Speaker 1: that there are compared to public companies. You look at
10:21
Speaker 1: the number of public companies, I think, what is it
10:23
Speaker 1: over the last ten years, they've they've gone down in
10:26
Speaker 1: the US. There's just more places to invest in the
10:29
Speaker 1: private side than there is in the public side, and
10:32
Speaker 1: so there's opportunity out there. But I am the last
10:35
Speaker 1: person to tell you that the world is a screaming
10:37
Speaker 1: by because prices are cheap on the on the private side,
10:40
Speaker 1: they're not. You really have to work to get returns.
10:44
Speaker 1: There's a there's a lot of money floating around the world.
10:46
Speaker 1: Right now. Let's talk a little bit about what's going
10:50
Speaker 1: on with the public markets. You mentioned earlier that the
10:54
Speaker 1: number of publicly traded companies in the US has dropped
10:58
Speaker 1: practically in half. I think the will share five thousand
11:02
Speaker 1: is now down to about Why do you think companies
11:06
Speaker 1: are staying private longer over the past decade. What do
11:10
Speaker 1: you think is driving that? I think it's a couple
11:14
Speaker 1: of reasons. The first is, the most publicized reason, is
11:17
Speaker 1: the hassle of being public. You read about the costs
11:20
Speaker 1: associated with whether it's more more auditing people, more financial,
11:25
Speaker 1: more compliance, whatever it is. I think being public is
11:29
Speaker 1: just you know, it's a hardship for for many companies,
11:31
Speaker 1: for many executives, and so people would prefer not doing
11:35
Speaker 1: it if they didn't have to. And that really is
11:37
Speaker 1: the second reason why you've seen a reduction I think
11:41
Speaker 1: in public companies is is the rise of private equity.
11:44
Speaker 1: In private markets, you now have a very very credible
11:48
Speaker 1: alternative financing source for some of the things that you
11:51
Speaker 1: would otherwise have to go public ten years ago. Um,
11:54
Speaker 1: if you want to acquire a company, private equity is
11:57
Speaker 1: there to provide the capital. You don't have to go
11:59
Speaker 1: public to raise the capital. If if you want to
12:02
Speaker 1: take out a founder. If you want to do, you know,
12:04
Speaker 1: whatever you want to do with your shareholder base, you
12:06
Speaker 1: can do it. On the private equity side, there's just
12:08
Speaker 1: an enormous amount of capital. That is, they're ready to
12:11
Speaker 1: provide corporate finance in a way that before it really
12:14
Speaker 1: either was a bank or the public markets. So I
12:17
Speaker 1: think it's the combination of those two things that has
12:19
Speaker 1: led to a reduction in the number of public companies.
12:23
Speaker 1: So how has all this capital that's been slashing around
12:28
Speaker 1: changed the pe landscape? It's more than just quantity. How
12:33
Speaker 1: is this qualitatively changing that market? It's changed how you
12:38
Speaker 1: have to go about getting return. I think what has
12:41
Speaker 1: happened is when when there wasn't as much capital, then
12:45
Speaker 1: you really could use just financial engineering. I mean, it
12:48
Speaker 1: was it was a much smaller game in the sense
12:50
Speaker 1: of there there wasn't as much competition for deals. It
12:54
Speaker 1: wasn't as well known on the private I mean you
12:56
Speaker 1: look at twenty years ago, even coming out of the
12:58
Speaker 1: O one two thousand a one downturn, it just was
13:01
Speaker 1: not a normal way to to do financing, to use
13:04
Speaker 1: private equity. That's just not the case anymore. So what
13:07
Speaker 1: it means is from the qualitative perspective, you need to
13:12
Speaker 1: do something more than just figure out how to lever
13:15
Speaker 1: a company and reduce costs or you know, whatever you
13:18
Speaker 1: did years ago. Um, you have to do something to
13:21
Speaker 1: make that company better. Whether it's an acquisition strategy, whether
13:25
Speaker 1: it's it's an operating strategy. You got to grow that company.
13:29
Speaker 1: And it has changed the nature of how private equity
13:32
Speaker 1: generates in my view. I think if you look at
13:36
Speaker 1: we run value creation models that say how to how
13:39
Speaker 1: does how is returned generated from these deals? Um, And
13:43
Speaker 1: you've seen a shift over the last ten, fifteen, twenty
13:46
Speaker 1: years into much more emphasis on operating results, much more
13:50
Speaker 1: emphasis on eva dog growth. Um. So that has really
13:53
Speaker 1: changed what you're looking for in general partners, what you're
13:56
Speaker 1: looking for to make money. Interesting. So, Hamilton Lane is
14:00
Speaker 1: one of the few alternative asset managers that that's a
14:03
Speaker 1: publicly traded company. What's the motivation for somebody that manages
14:09
Speaker 1: private investments to themselves go public? Yeah? Interesting, isn't it.
14:14
Speaker 1: It's the you know, we we we preached the virtues
14:18
Speaker 1: of being private and we're public. Um. I think it's
14:21
Speaker 1: part of the life cycle of many companies. I think
14:23
Speaker 1: for us There were a couple of things that drove it.
14:25
Speaker 1: One was we were always an equity culture, even when
14:28
Speaker 1: we were when we were private, the mantra around the
14:32
Speaker 1: firm was, you know you you create value, personal value
14:37
Speaker 1: through equity ownership. And and we add well over a
14:40
Speaker 1: hundred of the employees that had equity stake in the company,
14:44
Speaker 1: and I think you reach a point where everyone has
14:47
Speaker 1: equity and they go, what am I doing with this equity?
14:51
Speaker 1: And it's it's amazing. It leads to the question of, oh,
14:53
Speaker 1: I get what's gonna happen. We're gonna get sold to
14:55
Speaker 1: someone and then everyone's going to realize their equity value.
14:59
Speaker 1: And internally the be in questioning that, and externally people
15:01
Speaker 1: begin asking you that. So when you look at how
15:04
Speaker 1: do I, how do I give people a path over
15:07
Speaker 1: ten years, over fifteen years to realize equity value in
15:11
Speaker 1: their holdings, going public is one of the ways you
15:14
Speaker 1: can do that, and so that was certainly probably the
15:17
Speaker 1: most important factor. The other factor was was the branding um.
15:22
Speaker 1: What we realized there was a group in Europe, Partners
15:25
Speaker 1: Group that in public and the branding impact was huge.
15:29
Speaker 1: I think in an industry that people viewed as small,
15:32
Speaker 1: the ability to say, you know, we're we're institutional enough,
15:36
Speaker 1: we've got quality controls, we've got sec controls were legit,
15:41
Speaker 1: and and that really mattered, particularly outside the United States. UM.
15:44
Speaker 1: And then the third factor was just the one I
15:46
Speaker 1: talked about alluded to with the equity ownership, was it
15:50
Speaker 1: tells people you're going to stay independent. I think all
15:52
Speaker 1: the questions about who's going to own you in five years,
15:55
Speaker 1: which is really important in the business we do. People
15:57
Speaker 1: want to know that you're going to be around for
16:00
Speaker 1: ten years. You know, they're signing up for quite some
16:02
Speaker 1: time to be doing these investments. So those three factors
16:05
Speaker 1: made it an interesting way to go, and the markets
16:08
Speaker 1: were open to it where they weren't I don't know,
16:10
Speaker 1: fifteen years ago, you couldn't really think about going public
16:13
Speaker 1: in the business we're in. So you guys, I p O,
16:17
Speaker 1: what was that experience. Well, it's funny because you're you're
16:22
Speaker 1: all of a sudden talking to public equity people, and
16:25
Speaker 1: you know, we're always used to talking to private equity people.
16:28
Speaker 1: So the roads show all of those things that was
16:30
Speaker 1: that was just a very very different sort of thing,
16:34
Speaker 1: you know, publicly. I know this sounds stupid and probably
16:37
Speaker 1: says something about how little I know. But in private equity,
16:40
Speaker 1: you spend all this time analyzing companies because you're stuck
16:44
Speaker 1: with them for some period of time. You can't just say, oh,
16:46
Speaker 1: made a mistake. In the public world, it's just a
16:49
Speaker 1: very different experience because they all have a mentality of
16:53
Speaker 1: I'd like to pick the investment, but if it's a mistake,
16:56
Speaker 1: I can always change my mind in a month of week,
16:58
Speaker 1: you know, whatever it is. And so that just a
17:00
Speaker 1: different mindset. So it was it was interesting. It was
17:03
Speaker 1: kind of getting your your head framed around. They have
17:07
Speaker 1: a different time frame, their perspective, their time horizon is
17:11
Speaker 1: just different from what we're sort of used to as
17:14
Speaker 1: what we do day to day in our business. So
17:16
Speaker 1: does having to report to shareholders every ninety days? Does
17:21
Speaker 1: that change your perspective on anything? How does that impact
17:25
Speaker 1: how you think about managing a company with over four
17:29
Speaker 1: employees and I know you're international, What do those quarterly
17:34
Speaker 1: requirements due to how you see the world. Yeah, it
17:38
Speaker 1: hasn't changed anything at this point for I think a
17:41
Speaker 1: couple of reasons. One is we went out as a
17:43
Speaker 1: controlled company um and, which which technically just means that
17:48
Speaker 1: while I don't know if you think something like of
17:53
Speaker 1: the of the equity is owned by management, voting control
17:57
Speaker 1: is something like eighty something percent, we owned voting control.
18:00
Speaker 1: So we don't have to worry about hedge funds buying
18:03
Speaker 1: us or activists investors and demanding changes. So there's no
18:07
Speaker 1: real pressure on oh my gosh, you know that the
18:10
Speaker 1: shareholders going to demand we do this and vote us
18:12
Speaker 1: out or whatever they do on the on the public side,
18:15
Speaker 1: on those situations, that is a huge factor. It eases
18:18
Speaker 1: all of that pressure. The other thing we are very
18:21
Speaker 1: clear with people is don't judge us quarter a quarter.
18:25
Speaker 1: This just isn't a quarterly judgment business. Uh, you know,
18:28
Speaker 1: we look at it year to year and that's how
18:31
Speaker 1: we're going to do things. And there's sort of, I believe,
18:33
Speaker 1: a self selection process. Investors or shareholders that want that
18:37
Speaker 1: perspective will buy your shares and others that don't won't.
18:41
Speaker 1: And so we've not really felt a whole lot of
18:43
Speaker 1: pressure in terms of quarterly earnings or meeting numbers. You
18:46
Speaker 1: look at our quarterly numbers, we've we've hit consensus on some,
18:50
Speaker 1: we've exceeded, we've we've we've not met consensus and other quarters,
18:55
Speaker 1: and you know, it's just sort of that's kind of
18:57
Speaker 1: what it is each quarter. You can't really help that. Huh.
19:00
Speaker 1: Quite interesting. Let's let's talk a little bit about what's
19:03
Speaker 1: been going on in with the pandemic and lockdown. You
19:09
Speaker 1: guys are a global company. You have I think seventeen
19:12
Speaker 1: offices around the world. How early on did you recognize
19:17
Speaker 1: how severely the economy was going to be impacted by
19:22
Speaker 1: the pandemic. I don't know that we recognized it a
19:28
Speaker 1: lot earlier than most. I think we were so are
19:31
Speaker 1: our offices in Asia closed very early, but even at
19:36
Speaker 1: that point, so this is probably what December there there
19:40
Speaker 1: closing early January. Even at that point, I think there
19:44
Speaker 1: was a feeling that there wasn't a feeling that devirus
19:48
Speaker 1: as contagious as we now know it is UM and
19:51
Speaker 1: so I think we felt that it was probably going
19:54
Speaker 1: to be contained Asia. UM when we really began to
19:57
Speaker 1: realize when it when it spread to Europe, our European
20:00
Speaker 1: offices at that point in our European clients were saying, uh,
20:05
Speaker 1: this is not that, this is not your average flu.
20:08
Speaker 1: I got news for you people, And so I would
20:10
Speaker 1: say we went into pretty heavy duty beware mode, maybe
20:16
Speaker 1: a few weeks earlier than than general. But as you know,
20:20
Speaker 1: once it hit Europe, it really started to spread pretty quickly. UM.
20:25
Speaker 1: But I think it's February, it was pretty clear that
20:28
Speaker 1: this was going to be a pretty big impact, if
20:31
Speaker 1: not globally, at least in some very major areas of
20:34
Speaker 1: the world. M quite quite interesting. So are there any
20:39
Speaker 1: advantages to private companies UH during a pandemic and lockdown
20:44
Speaker 1: versus those that are public? How does that impact management
20:50
Speaker 1: of those entities in very tumultuous, volatile times. The one
20:56
Speaker 1: thing I will say, and not just because I'm in
20:59
Speaker 1: private equity it, but paying some credit to the private
21:02
Speaker 1: equity world, private credit world, the private world, Um, they
21:06
Speaker 1: learned from the O eight o nine downturn, and what
21:09
Speaker 1: we saw really beginning in February. UM. Certainly in the
21:13
Speaker 1: in the Western world was immediate and I mean immediate
21:18
Speaker 1: action saying this is really going to be bad. We
21:22
Speaker 1: need to hunker down and prepare. And so I would
21:24
Speaker 1: say that the private world reacted far faster, and maybe
21:28
Speaker 1: because they could, because obviously if you're private, you can
21:31
Speaker 1: do things instantly and you don't have to worry about,
21:33
Speaker 1: you know, saying anything in the public or what the
21:34
Speaker 1: public reaction is going to be. And we had we
21:39
Speaker 1: had people talking about, you know, contingency planning in February
21:44
Speaker 1: and putting those plans into into place. But I think
21:47
Speaker 1: it was more driven. I think it was less driven
21:49
Speaker 1: by the pandemic. Then it was driven by I know
21:52
Speaker 1: what happened in O eight O nine, and it feels
21:55
Speaker 1: like that kind of thing happening again, so let's prepare
21:59
Speaker 1: for the worst, um And I would say that was
22:01
Speaker 1: across the board. It was surprising how quickly it happened.
22:05
Speaker 1: Huh So, so that's a really interesting observation. How does
22:10
Speaker 1: compare to an event like O eight oh nine, or
22:13
Speaker 1: how does it compare to the you know, dot Com
22:15
Speaker 1: implosion two thousand to two thousand and three. I think
22:22
Speaker 1: we all thought in March that it was going to
22:24
Speaker 1: be almost a replay of oh eight O nine. I
22:27
Speaker 1: think everyone prepared for it um as if we're going
22:31
Speaker 1: to have twelve to eighteen months of just all hell
22:35
Speaker 1: breaking loose, and that's when it all changed, as you know. UM.
22:39
Speaker 1: I think a couple of things were different. One, you
22:44
Speaker 1: had a monetary and fiscal response, in literally the period
22:47
Speaker 1: of a month or two. That did I don't know
22:50
Speaker 1: ten times what it took the fiscal and monetary authorities
22:54
Speaker 1: in OH nine to do over eighteen months twenty four months.
22:57
Speaker 1: So the speed of the response was unbelievable and which
23:03
Speaker 1: in my view really led to the stock markets certainly
23:06
Speaker 1: doing better, all markets doing better um, and the economy
23:09
Speaker 1: is sort of flatlining and not falling apart. That was
23:14
Speaker 1: big difference, number one. But the other big difference that
23:18
Speaker 1: only became apparent after a month m was in In
23:23
Speaker 1: every other downturn I've ever been associated with, you could
23:26
Speaker 1: look back and go, here's the companies that did well,
23:30
Speaker 1: and here's the companies that didn't. You know, they had
23:32
Speaker 1: too much leverage so they didn't do well. They had,
23:34
Speaker 1: you know, lousy management, they didn't do well. Whatever you
23:37
Speaker 1: could point to mistakes that were made or things that
23:39
Speaker 1: were done wrong, that wasn't the case in this In
23:42
Speaker 1: this pandemic, here it was random. If you were in
23:46
Speaker 1: the right industry, you did well. If you were in
23:49
Speaker 1: the wrong industry, you did poorly. And it didn't matter
23:52
Speaker 1: what your balance sheet looked like, it didn't matter how
23:55
Speaker 1: good or bad your management was. You it was kind
23:58
Speaker 1: of the the luck of the draw or the bad
24:01
Speaker 1: luck of the draw. If you're in a pandemic hit industry,
24:04
Speaker 1: if you're in a hotel, if you're in a restaurant,
24:06
Speaker 1: if you're in travel, you're in trouble, and no amount
24:11
Speaker 1: of great foresight would have helped you. And and that
24:14
Speaker 1: is we just haven't seen that before. It's it's a
24:17
Speaker 1: very very unique situation that way. Sure, after a few
24:21
Speaker 1: months then it became apparent who knows what they're doing,
24:24
Speaker 1: who can adjust to it. But that initial shock to
24:28
Speaker 1: the company, or that initial boost to the company had
24:32
Speaker 1: very very little to do with the genius or the
24:35
Speaker 1: lack of genius of anyone associated with that particular investment.
24:40
Speaker 1: Are your investors aware of that or or understanding of that?
24:45
Speaker 1: Because I can imagine certain people just demanding performance regardless
24:50
Speaker 1: and markets don't work that way. How empathetic and understanding
24:56
Speaker 1: has the private equity investor class b into what's clearly
25:01
Speaker 1: an exogeneous shock UM? I would say pretty good. I
25:06
Speaker 1: would say pretty good. I think there's still the demand
25:09
Speaker 1: for performance, UM, and so that doesn't go away. I don't.
25:13
Speaker 1: I don't think you get a I think you get
25:14
Speaker 1: a free pass to say, well, I guess what, I
25:17
Speaker 1: just invested in all restaurants. Um, so you don't get that,
25:21
Speaker 1: but I do think again, conditioned by O eight O
25:24
Speaker 1: nine investors, I was surprised that in March we weren't
25:30
Speaker 1: getting a lot of calls the way we got an
25:32
Speaker 1: O eight O nine of people really saying get me
25:34
Speaker 1: out of my investments, or you've got to do something,
25:37
Speaker 1: or oh my gosh, I don't want to be anywhere
25:39
Speaker 1: near I liquid assets. Instead people said, I get the drill,
25:44
Speaker 1: I understand what happens. Um. I actually would almost rather
25:47
Speaker 1: be in liquids than in public right now. So I'm
25:51
Speaker 1: not panicking. And I think that that again was more
25:53
Speaker 1: conditioning from from the DO nine experience. Um, And that's
25:57
Speaker 1: how people have reacted. They've they've taken it in stride
26:01
Speaker 1: and again and not something that you would have expected
26:05
Speaker 1: that if you had talked to me in April, I
26:06
Speaker 1: would not have thought that that's how people would have
26:09
Speaker 1: reacted on the investment side, on the private markets. But
26:13
Speaker 1: that's been the experience really really interesting. Are there any
26:17
Speaker 1: particular areas in the economy that, because of the pandemic,
26:21
Speaker 1: because of the lockdown, have created some opportunities. I mean,
26:26
Speaker 1: I understand no one wants to put money into restaurant
26:29
Speaker 1: chains or or hotels or live entertainment venues, but anything
26:35
Speaker 1: that has popped up because of this that suddenly has
26:39
Speaker 1: become more interesting. Well, here here's the funny part. I
26:43
Speaker 1: think you mentioned three industries where I think people are looking.
26:46
Speaker 1: So I think one of the things people have to
26:48
Speaker 1: make a decision about today is are they going to
26:52
Speaker 1: be value or growth investors? And I know in the
26:54
Speaker 1: public markets that's the sort of common refrain, but in
26:57
Speaker 1: the private markets that has not been the normal refrain.
27:01
Speaker 1: We really never thought of the world as growth versus value.
27:06
Speaker 1: But as investors, I think we have two choices today,
27:09
Speaker 1: and you can choose to be agnostic and just you know,
27:13
Speaker 1: do a little bit of everything. But are you going
27:15
Speaker 1: to invest in the growth areas the areas that right
27:18
Speaker 1: now are selling multiples that they were pre pandemic because
27:21
Speaker 1: these companies have done great, whether they're technology companies, whether
27:24
Speaker 1: there's some there's some home improvement companies that have done
27:28
Speaker 1: great during this pandemic. Their growth companies, they've grown and
27:33
Speaker 1: you believe they'll continue to grow because people this pandemic
27:37
Speaker 1: will go on some time longer and or people's behavior
27:40
Speaker 1: will have changed and they'll be using these sorts of
27:42
Speaker 1: services and companies longer. Or are you going to pay
27:45
Speaker 1: cheaper prices for assets in those very industries you described restaurants, hotels, um,
27:53
Speaker 1: And you're going to make a decision that those industries
27:56
Speaker 1: are coming back in X time frame in X way
28:00
Speaker 1: like they'll grow, you know, they'll be equal to what
28:03
Speaker 1: they were before, they'll be where you pick your number.
28:06
Speaker 1: I think that's where investors right now, where we're all
28:09
Speaker 1: sort of trying to figure out where are we going
28:12
Speaker 1: to lean, how are we going to invest, and what
28:15
Speaker 1: are we doing because the cheap prices are in those
28:19
Speaker 1: assets you describe that are in industries that are hit.
28:21
Speaker 1: But do you believe they'll ever come back? They will,
28:25
Speaker 1: I'm sure they will, But when what's the right capital
28:28
Speaker 1: structure for these companies? Um? And what's the right price today?
28:34
Speaker 1: So so those value sectors you mentioned, the immediate question
28:38
Speaker 1: that pops into mind for private equity investing is is
28:42
Speaker 1: this an equity investment or is this on the credit side. Yep,
28:48
Speaker 1: that's both people are looking at it. That's exactly right
28:51
Speaker 1: there looking at it both ways. Where do I want
28:54
Speaker 1: to put what's my risk return profile around this um
28:58
Speaker 1: and you know what does the company want? Obviously I'm
29:00
Speaker 1: gonna take a lower number if I'm a lower return
29:03
Speaker 1: number if I'm doing credit, but I'm going to have
29:05
Speaker 1: more security around it. So I think that's those are
29:09
Speaker 1: the areas that people are really big. But even on
29:11
Speaker 1: the credit side, So maybe I want to put my
29:15
Speaker 1: money with a growth company because it's gonna be safer,
29:18
Speaker 1: it's going to grow. I don't have to worry about
29:19
Speaker 1: whether you know, this pandemic is going to go on
29:22
Speaker 1: a year or more and my value company will be
29:24
Speaker 1: hit longer than I thought. It's a it's a very
29:27
Speaker 1: very interesting time to invest. People have to make some
29:29
Speaker 1: real choices UM and I think unlike pre pandemic, where
29:35
Speaker 1: you didn't have a choice, you either were in an
29:37
Speaker 1: industry that was hit or you weren't. I think investment
29:40
Speaker 1: return over the next two or three years will really
29:43
Speaker 1: be determined by decisions you make today around whether you're
29:47
Speaker 1: going to look for growth, whether you're gonna look for value,
29:50
Speaker 1: whether you're going into credit, whether you're going into equity.
29:53
Speaker 1: I think people will be making portfolio and investment decisions
29:56
Speaker 1: that will really matter. UM when we look back, when
30:00
Speaker 1: when I have this interview in a couple of years,
30:02
Speaker 1: we will look back and go, oh, my gosh, what
30:05
Speaker 1: was I thinking. I really thought growth was going to
30:07
Speaker 1: continue like this. Let's talk a little bit about what
30:10
Speaker 1: the future of private equity investments look like. But but
30:14
Speaker 1: I have to start with the question of I p
30:17
Speaker 1: O S. I p O markets have been on fire
30:20
Speaker 1: this year. Does that create a tail wind for private equity?
30:25
Speaker 1: Probably probably everything. Everything is uh, you know, sort of
30:30
Speaker 1: the the good side and bad side. The good side
30:35
Speaker 1: is it creates exits. And at the end of the day,
30:37
Speaker 1: you know, investors want exits. They they want some monetization
30:42
Speaker 1: of their investments, and so the I p O market
30:44
Speaker 1: provides that. It also provides another path. It's not it's
30:48
Speaker 1: not the only path it gives. It gives a company.
30:51
Speaker 1: If I'm going to say I'm an I p O
30:52
Speaker 1: that almost automatically attracts strategic investors UM, and so I'm
30:57
Speaker 1: creating an environment where they investment will probably do petter
31:02
Speaker 1: because there's there's more interesting ways to to exit, and
31:05
Speaker 1: it creates a competitive environment around that exit price. UM.
31:09
Speaker 1: The bad side of it is twofold. One is that
31:13
Speaker 1: it creates on the buy side, it creates a competitive
31:17
Speaker 1: market with a higher price generally I p O s
31:19
Speaker 1: or higher priced And so if I want to buy
31:22
Speaker 1: company X, they say, well, you can buy me, but
31:25
Speaker 1: you're gonna have to pay twice as much as you
31:27
Speaker 1: just said because I'm an I p O. So it
31:29
Speaker 1: has that sort of effect on my ability to invest
31:34
Speaker 1: in some companies. The other thing it does is it
31:37
Speaker 1: creates some pressure, interestingly for private equity of keeping up
31:41
Speaker 1: performance post IPO. You saw that part of the reason
31:46
Speaker 1: some people were skeptical about private equity, and you know
31:49
Speaker 1: eight was because the companies that they took public in
31:51
Speaker 1: six oh seven didn't perform as well as people wanted,
31:54
Speaker 1: and so it took a period of time for private
31:56
Speaker 1: equity to regain its credibility in the public markets. Um.
32:00
Speaker 1: And so that as just another layer of pressure, if
32:03
Speaker 1: you will, in terms of private equity and the scrutiny
32:06
Speaker 1: on its performance, because it's not just performance as a
32:08
Speaker 1: private company now, it's performance at a public company. So
32:12
Speaker 1: so let's delve into that a little bit. If you're
32:15
Speaker 1: evaluating a private investment company to determine whether or not
32:18
Speaker 1: you want to put your own personal money in there,
32:22
Speaker 1: what would you be looking for? What, what sort of
32:24
Speaker 1: questions would you ask management? I I always think that
32:29
Speaker 1: one of the most underrated things in investing is the
32:33
Speaker 1: quality of the management team. UM. I think that is
32:37
Speaker 1: that is where, yes, the financials are important, and they
32:41
Speaker 1: always are. But does it relatively straightforward to to analyze it.
32:46
Speaker 1: It doesn't. It doesn't take a rocket scientist to figure out,
32:49
Speaker 1: you know what, what kind of interested exposure, what kind
32:52
Speaker 1: of interest cost a company compare. You've got to make
32:55
Speaker 1: some judgment about whether that industry is right. But at
32:59
Speaker 1: the end of the day, I mean we've always said
33:00
Speaker 1: this that if if you've got the right management team,
33:03
Speaker 1: the right culture around that management team, you can have
33:06
Speaker 1: the wrong business strategy and you'll probably be okay. But
33:09
Speaker 1: the opposite is not true. You can have a great
33:12
Speaker 1: business strategy, but if you've got a lousy management team,
33:14
Speaker 1: a lousy culture at that company, you're probably not going
33:17
Speaker 1: to do well. And so I think the first question
33:20
Speaker 1: is around, you know, how does this management team work,
33:23
Speaker 1: what are their motivations, how do they think about the future,
33:26
Speaker 1: what are they looking to achieve? I think those are
33:29
Speaker 1: the things that that you end up spending a lot
33:31
Speaker 1: of time around um and that are not really quantifiable.
33:35
Speaker 1: There's a whole raft of quantifiable things you can look at,
33:39
Speaker 1: but there's an enormous qualitative element um And I would
33:42
Speaker 1: say if you look at some of the best investors,
33:45
Speaker 1: one of the things that's always struck me is how
33:47
Speaker 1: some people are just really good at judging human talent
33:51
Speaker 1: um and they do a great job of picking the
33:53
Speaker 1: right management teams and picking the right people to go
33:57
Speaker 1: into management teams. So I think that's an under appreciated
34:02
Speaker 1: art of investing. Quite quite interesting. So there has been
34:08
Speaker 1: increasing chatter about private equity potentially finding its way into
34:15
Speaker 1: uh smaller than accredited investor portfolios, including four O one case.
34:22
Speaker 1: What are your thoughts of private equity becoming I don't
34:27
Speaker 1: know even know if normalized is the right word, but
34:30
Speaker 1: sort of becoming just another asset class option. Yeah, I'm
34:38
Speaker 1: probably in the skeptical camp on that one. Um. I
34:42
Speaker 1: think there are there are on a good side, I
34:44
Speaker 1: think it is Look, it's a it's a it's a
34:49
Speaker 1: good returning asset class um and so people should have
34:52
Speaker 1: access to it. But it's also an asset class that
34:57
Speaker 1: doesn't have the kind of transparency that the public UH
35:00
Speaker 1: markets have. It's an ethnic classes, as you talked about.
35:03
Speaker 1: The r R has a different way of reporting, a
35:05
Speaker 1: different way of money flows coming in and out compared
35:08
Speaker 1: to public equity, and so I think we all have
35:12
Speaker 1: to be really careful about assuming that this should be
35:16
Speaker 1: a great four oh one K or retail investment option. UM.
35:20
Speaker 1: To me, it's a little bit like what happened with
35:23
Speaker 1: real estate when they created reads. I think that I
35:26
Speaker 1: think that it will take some some legals, changes in
35:31
Speaker 1: regulatory structure and law in order to create structures that
35:35
Speaker 1: make private equity UM a good investment choice for the
35:40
Speaker 1: retail investor. And I'm not sure that having the retail
35:44
Speaker 1: investor go into some of these structures is really the
35:47
Speaker 1: right way to go back. I worry about it. I
35:49
Speaker 1: worry about what happens in a downturn when investors go, wait,
35:53
Speaker 1: I didn't you didn't tell me that this was going
35:56
Speaker 1: to happen UM. So I would say that, yes, it
36:01
Speaker 1: is an asset class that will be an increasing part
36:03
Speaker 1: of high net worth channels um UM. But I am
36:08
Speaker 1: skeptical that existing structures are really going to be a
36:12
Speaker 1: way that retail investors will be happy with their experience
36:16
Speaker 1: with private equity. So you mentioned one of the obstacles
36:20
Speaker 1: is the lack of transparency. What could the industry do
36:25
Speaker 1: if it wanted to become more transparent, Well, I mean,
36:31
Speaker 1: the thing it would have to do is provide essentially
36:34
Speaker 1: daily pricing. The thing would have to do is provide
36:37
Speaker 1: much more transparency around um operating performance at companies. And
36:42
Speaker 1: and you know, there, there, you're in that struggle with
36:45
Speaker 1: the whole purpose of private equity. Is that is that
36:48
Speaker 1: you're not doing that? And so you know, are you
36:52
Speaker 1: twisting the very one of the very things that makes
36:55
Speaker 1: private equity interesting in order to to allow other investors
37:01
Speaker 1: or to give access to other investors to come in.
37:04
Speaker 1: That's that's a tough one. I think it is. It
37:06
Speaker 1: is the fundamental daily pricing that is just a completely
37:12
Speaker 1: different thing from what how private equity operates. That makes
37:15
Speaker 1: it tough to say, Okay, we're going to be exactly
37:17
Speaker 1: like our public equity brethren and do it this way.
37:22
Speaker 1: I don't I don't have a great answer other than
37:24
Speaker 1: to say the reachs did it, but they did it
37:26
Speaker 1: in a in a completely different structure. And had tax
37:30
Speaker 1: changes that allowed them essentially to create a basket of
37:34
Speaker 1: companies UM and that worked, and I think if you
37:38
Speaker 1: do it that way for private equity, I think that
37:41
Speaker 1: would be an interesting way to go. Yeah. The the
37:44
Speaker 1: nice thing about reets is is it sort of solves
37:46
Speaker 1: the K one tax issues. If you're going to have
37:50
Speaker 1: a hundred separate private holdings, UM, so somewhere between an
37:55
Speaker 1: E t F and a RED might be one situation.
37:59
Speaker 1: I know there's a lot of reporting and custodial issues,
38:03
Speaker 1: but how on earth could you possibly get a daily
38:06
Speaker 1: price from a relatively small private company that that becomes
38:11
Speaker 1: all but impossible. I you could barely get annual prices.
38:16
Speaker 1: Really quarterly prices, what are they? How much does a
38:19
Speaker 1: private business really change month to month, quarter to quarter?
38:25
Speaker 1: It doesn't. I mean, I think some of the things
38:27
Speaker 1: that you've seen it people talk about is essentially an
38:30
Speaker 1: algorithm that mimics. So private company is in it makes drywall,
38:38
Speaker 1: and so you get a basket of public companies that
38:41
Speaker 1: are in that industry, and then you apply it's daily
38:44
Speaker 1: changes to that private companies changes. I mean, it's a synthetic.
38:47
Speaker 1: You're not really pricing because at the end pricing is
38:51
Speaker 1: a matter of of a buyer and a seller, and
38:54
Speaker 1: you don't have that in the in the private context,
38:57
Speaker 1: so anything you do will be synthetic. Quite quite interesting.
39:01
Speaker 1: Let me switch gears on you and talk a little
39:03
Speaker 1: bit about E s G environmental, social and governance issues.
39:08
Speaker 1: Last month Hamilton Lane created a position to formally lead
39:12
Speaker 1: your efforts in that space. How is E s G
39:16
Speaker 1: and impact investing playing out in the private markets and
39:20
Speaker 1: are you seeing any sort of demand for institutional investors
39:25
Speaker 1: for this? I would say, if you, if you project
39:31
Speaker 1: out a few years, what will be the biggest changes
39:35
Speaker 1: in the private markets. I think E s G will
39:38
Speaker 1: be up there. I don't know it's number one, number three,
39:40
Speaker 1: but it'll be up there. Um. And it's been an
39:44
Speaker 1: important factor for some time, but I think interestingly the
39:48
Speaker 1: pandemic will make that even more of a focus. Whether
39:52
Speaker 1: it's because people go, the reason the pandemic happened is
39:54
Speaker 1: because of human encroachment on nature. Whether it's because people
39:58
Speaker 1: go during the pandemic, we've seen that, you know, we
40:01
Speaker 1: we can reduce our reliance on certain things. There's just
40:06
Speaker 1: it is. It is going to be a part of
40:09
Speaker 1: everyday conversation, and I'll divide it into two parts. The
40:13
Speaker 1: one part is have we seen more interest in impact
40:16
Speaker 1: investing or E s G focus investing. I would say
40:19
Speaker 1: there's a little more interest in specific investments targeted in
40:25
Speaker 1: those areas, but that's sort of been a generally increasing part.
40:29
Speaker 1: Where there is a really increasing focus is on E
40:35
Speaker 1: s G as a criteria on every investment you make.
40:38
Speaker 1: So it's not to say I am going to make
40:41
Speaker 1: an impact investment because it will have X, y z
40:44
Speaker 1: impact on the environment. Every investment will be analyzed. And
40:48
Speaker 1: we're getting more inquiries around this than than we've ever had.
40:54
Speaker 1: What is what is that investments impact on the environment,
40:58
Speaker 1: How is that impact, how that investment um what is
41:01
Speaker 1: the governance around it? So I believe that just as
41:04
Speaker 1: we all have become accustomed to looking at an investment
41:07
Speaker 1: and saying, what is the projected EBA DAT in year three,
41:11
Speaker 1: you know, whatever it is, I think we will have
41:14
Speaker 1: every investment report, every investment analysis look at a deal
41:18
Speaker 1: under a set of E s T criteria and and
41:22
Speaker 1: we will be we will be judged by that as
41:24
Speaker 1: part of our investment performance. I've heard from a number
41:29
Speaker 1: of different analysts who look at the s G not
41:33
Speaker 1: as a sort of progressive versus conservative political battle, but
41:38
Speaker 1: rather in context of, hey, this is a methodology of
41:41
Speaker 1: doing certain types of risk screening. UM. You don't end
41:45
Speaker 1: up with the sort of me too movement that in
41:50
Speaker 1: companies where there's diverse boards and promotion for women and
41:55
Speaker 1: people of color, and you don't end up with the
41:57
Speaker 1: sort of UM disaster we saw in Gulf of Mexico
42:00
Speaker 1: a few years ago, UM with with a giant oil
42:04
Speaker 1: spill when you're screening for e s G. So the
42:08
Speaker 1: bigger question is is this merely a risk screening tool?
42:13
Speaker 1: What what is the impact of this when you're looking
42:15
Speaker 1: at private companies. Well, it's certainly a risk screening tool,
42:20
Speaker 1: but it's also a return enhancing tools. So, for example,
42:25
Speaker 1: UM will take a consumer oriented company. Will consumers respond
42:30
Speaker 1: to a company that has a more diverse board, a
42:34
Speaker 1: more diverse management team? Will consumers respond better to a
42:38
Speaker 1: company that is making efforts to promote UM UH to
42:44
Speaker 1: retard climate change. I think it is becoming, yes, certainly
42:48
Speaker 1: a risk factor, but it is becoming a factor of
42:52
Speaker 1: my business will do better or it won't get hurt
42:56
Speaker 1: because I'm perceived as a company that is indifferent to
42:59
Speaker 1: the environment or indifferent to social factors, or isn't governed properly. Um. So,
43:04
Speaker 1: I think as we look at it, it is it
43:06
Speaker 1: is both. It is both a defensive and offensive part
43:10
Speaker 1: of generating return and and reducing risk and to stay,
43:17
Speaker 1: I don't think this is a sad we've crossed whatever
43:21
Speaker 1: line you crossed when you say, now this is part
43:23
Speaker 1: of mainstream investment analysis. Huh that that's quite quite interesting.
43:30
Speaker 1: I wanted to address, um, one of the issues you
43:34
Speaker 1: raised in terms of government, in terms of governance and
43:38
Speaker 1: diversity on boards. Hamilton Lane was recently named International LP
43:43
Speaker 1: of the Year by the Private Equity Women's Investor Network.
43:48
Speaker 1: Our industry is very underrepresented with women, with people of color.
43:53
Speaker 1: What does that honorific mean about your approach to diversity. Well,
44:02
Speaker 1: I feel like, you know, pat ourselves on the back.
44:05
Speaker 1: I feel like we have always been very, very conscious
44:08
Speaker 1: of the importance of diversity for for us as a
44:12
Speaker 1: firm in terms of being a better firm. It did
44:15
Speaker 1: it just it just matters to us, and so I
44:18
Speaker 1: feel like we've always been at the forefront of that
44:20
Speaker 1: in terms of our industry. But you're right, our industry
44:23
Speaker 1: is not great, both financial industry in general and private
44:28
Speaker 1: equity specifically UM and so I'm I'm very proud of
44:33
Speaker 1: that honor. I think it it says that people recognize
44:36
Speaker 1: that we are we have done a lot in terms
44:40
Speaker 1: of diversity, but we need to do more. I mean,
44:43
Speaker 1: it's as simple as that. It is still we need
44:46
Speaker 1: to do more both for Hamilton Wayne and we need
44:49
Speaker 1: to do more in terms of making the industry more diverse.
44:52
Speaker 1: I mean, I think the good news about being our
44:56
Speaker 1: size and having our place in the industry is that
45:00
Speaker 1: we we have an ability um to to frame the
45:03
Speaker 1: conversation and make sure that where we're investing, diversity is
45:09
Speaker 1: one of the goals that are investee companies, that our
45:12
Speaker 1: general partners understand is important to us and to our clients. So,
45:16
Speaker 1: you know, it's it's a process. We're very happy with
45:19
Speaker 1: where we are, and you just gotta keep you gotta
45:23
Speaker 1: keep moving. So I know you represent Hamilton Lane on
45:27
Speaker 1: a couple of boards, both boards of advisors and boards
45:30
Speaker 1: of directors. What sort of h what does that work like?
45:34
Speaker 1: Do you enjoy it or do you feel like you
45:37
Speaker 1: really have input into some of the companies you invest in?
45:41
Speaker 1: Or are these really more just advisory positions. Yeah, I'm
45:46
Speaker 1: more on on the advisory side, so I'm not I'm
45:51
Speaker 1: not a huge fan of advisory boards, to tell you
45:53
Speaker 1: the truth. People always laugh at me about about that. Um,
45:57
Speaker 1: they're fine and they're good in terms of particularly when
46:01
Speaker 1: it gets to talking about conflict of interest issues. I
46:03
Speaker 1: think they're important that you have a board to do that.
46:06
Speaker 1: But in terms of getting information, in terms of providing feedback,
46:10
Speaker 1: in terms of the kinds of things that really matter
46:13
Speaker 1: in shape how how groups invest, I think the smaller
46:19
Speaker 1: meetings are still more important. I don't know that that
46:22
Speaker 1: advisory boards really accomplished as much as you want them to.
46:26
Speaker 1: As I said, I think that their ability to appine
46:29
Speaker 1: on conflicts is important, and the fact that they're there
46:32
Speaker 1: and provide a way for the general partners to be
46:35
Speaker 1: more transparent is important. But as a decision making body,
46:40
Speaker 1: I'm not a huge huge believer in that. Alright, let
46:43
Speaker 1: me throw a curveball at you. Tell us about the Hambletons.
46:52
Speaker 1: So that is a curveball. Um, we have a house
46:56
Speaker 1: band essentially, it's uh, I don't know. There are twelve
46:59
Speaker 1: or thirteen of us, and we do well in the pandemic.
47:04
Speaker 1: But we do a charity concert every year. Uh, and
47:08
Speaker 1: it's fun. You know. We get six or seven hundred people,
47:10
Speaker 1: We pick a charity that we want to give to
47:12
Speaker 1: whom we give the proceeds. Uh, and it's it's a
47:15
Speaker 1: good outlet. We have I don't know, four or five
47:17
Speaker 1: singers and like every other band, they're the DeVos and
47:20
Speaker 1: we do whatever they want us to do. I play
47:22
Speaker 1: guitar poorly, but I play and it's it's fun. I
47:25
Speaker 1: think people enjoy it during the pandemic. What we've done
47:28
Speaker 1: is we've probably every month we do a song. You know,
47:32
Speaker 1: we'll do it virtually and then someone puts it together
47:35
Speaker 1: and then we send it out over a Slack channel.
47:37
Speaker 1: And it's it's fun. People enjoy all different genres of music.
47:42
Speaker 1: I can imagine that being fun when I when I
47:44
Speaker 1: sort of happened across that in our research, I said,
47:47
Speaker 1: I have to save that question because it does look
47:50
Speaker 1: like fun. So music the big deal for us, you know.
47:53
Speaker 1: So our conference rooms I don't know if you know this,
47:55
Speaker 1: but our conference rooms are we don't have like the
47:58
Speaker 1: Lincoln Room or the room or whatever, you know, whatever
48:01
Speaker 1: people name things. We have on one floor we have
48:03
Speaker 1: guitar makers Gibson, Sender, Martin, and on the other floor
48:06
Speaker 1: we have guitar players. So we have the event haling Room,
48:09
Speaker 1: Jimmy Page Room, Jimmy Hendricks Room. Just the music is
48:12
Speaker 1: a big deal for the firm, and so it's always
48:14
Speaker 1: been that way. That's quite interesting. UM So let me
48:18
Speaker 1: jump to my favorite questions that we ask all our
48:21
Speaker 1: guests and and let's see how you how you manage these.
48:25
Speaker 1: UM tell us what you've been streaming under lockdown? What
48:30
Speaker 1: are your favorite Netflix or or Amazon Prime shows? What
48:34
Speaker 1: are you listening to? What are you keeping yourself entertained with?
48:40
Speaker 1: So that I hate to say this, but I don't.
48:42
Speaker 1: I don't listen to podcast. I hate I shouldn't say that, right,
48:46
Speaker 1: I don't think anybody. Yeah, well, why don you get
48:49
Speaker 1: to your favorite books? I'm gonna that's that's my third question.
48:53
Speaker 1: But this question I am. I am a big stand
48:56
Speaker 1: I'm a big fan of um of of ms streets
49:00
Speaker 1: on on Amazon. I watched things like Shetland, Borderland River.
49:06
Speaker 1: I love those kind of Scandinavian noir h mysteries. I
49:12
Speaker 1: love them. I just watched these things Look at Night,
49:16
Speaker 1: my My wife is similar, and I remember her watching
49:21
Speaker 1: UM the Original Woman with a dragon tattoo in I
49:25
Speaker 1: think it was Danish or or she the not the
49:28
Speaker 1: Swedish person. The Swedish version, yeah right, and when when
49:33
Speaker 1: the US version came out, she's like, Nope, no interests.
49:36
Speaker 1: So those terrible. It was terrible. The Swedish version was compelling.
49:40
Speaker 1: Tell her to watch River. I don't know if she's
49:42
Speaker 1: seen it, but Rivers it's a one season show on
49:46
Speaker 1: I think it was Amazon. I camera his Amazon Netflix.
49:49
Speaker 1: Just phenomenal if you like those sort of odd mystery
49:54
Speaker 1: short seasons. Have you ever seen The Room? I believe
49:58
Speaker 1: that's on Amazon Prime. Also I have not. I have
50:01
Speaker 1: to watch that one. The Room very interesting cast, really
50:04
Speaker 1: sort of borderline sci fi supernatural, but intriguing and definitely
50:10
Speaker 1: worth worth playing with. UM. So let me ask you
50:14
Speaker 1: this question. Tell us about your mentors who helped shape
50:19
Speaker 1: your career. UM. I would say, certainly, in the private
50:25
Speaker 1: equity world, there have been a couple of general partners
50:27
Speaker 1: who I have viewed as mentors, who I've turned to
50:30
Speaker 1: for advice, who I've turned to for for um for help.
50:36
Speaker 1: But I would say my main mentors, interestingly were teachers
50:39
Speaker 1: I had um in college who I remained close to
50:44
Speaker 1: over the years. Um. They they were an enormous influence
50:48
Speaker 1: on my life. So I would say I've always said
50:51
Speaker 1: this to people, just the teachers you meet in your
50:55
Speaker 1: life have an incredible can have an incredible influence on
50:59
Speaker 1: what you do in life and how you do it.
51:01
Speaker 1: It's a it's a surprising thing as I look back
51:03
Speaker 1: and think about that you mentioned reading. Tell us about
51:08
Speaker 1: some of your favorite books. What are you reading now
51:10
Speaker 1: and what do you like to recommend to people. I'm
51:14
Speaker 1: a I'm a fiction fan. I don't I don't read
51:18
Speaker 1: a ton of nonfiction. I don't read business books or
51:21
Speaker 1: how to or you know, the good the great kind
51:24
Speaker 1: of stuff. Um, and I just I like all sorts
51:27
Speaker 1: of fiction. What did I just at eleanor get the
51:36
Speaker 1: exact title eleanor font is okay? Um? What have I read?
51:41
Speaker 1: I read recently Americana? Um books like that. I just
51:46
Speaker 1: all all sorts of different kinds of books. And uh,
51:51
Speaker 1: what sort of advice would you give to a recent
51:53
Speaker 1: college grad who was thinking about a career in the
51:57
Speaker 1: private market space? Um, what I would tell them is
52:05
Speaker 1: to be a little more flexible and open to changes
52:10
Speaker 1: around what you're doing and how you're doing it. What
52:13
Speaker 1: I find is a lot of people coming into the
52:16
Speaker 1: private markets have a very very fixed view of what
52:20
Speaker 1: they want in life and how they want it, and
52:23
Speaker 1: it just doesn't happen that way. The markets. The world
52:25
Speaker 1: is going to change over the next five or ten years.
52:28
Speaker 1: It always does, and and people just need to be
52:31
Speaker 1: way more open to trying different things, doing different things,
52:35
Speaker 1: experiencing different things. I worry a little bit about, Okay,
52:39
Speaker 1: here's how the private equity career span works, and that's
52:44
Speaker 1: what I'm gonna do, come hell or high water, and
52:46
Speaker 1: people just need to and coming from me and kind
52:49
Speaker 1: of rich, but go with the flow a little more.
52:52
Speaker 1: H good answer. And our final question, what do you
52:56
Speaker 1: know about the world of private equity investing today that
53:00
Speaker 1: you wish you knew thirty or so years ago? What
53:08
Speaker 1: do I know today that I wish I knew thirty
53:10
Speaker 1: years ago? I think it's the advice I would give
53:12
Speaker 1: who have given myself the same advice that um, it
53:17
Speaker 1: is not going to look the way it does, and
53:20
Speaker 1: you can't you cannot. I wish I had known that
53:24
Speaker 1: you can't assume that things are going to move in
53:26
Speaker 1: any sort of linear direction. UM. Had I known that,
53:30
Speaker 1: I think I would have been more aggressive about pursuing
53:34
Speaker 1: certain changes. I would have been just more open to
53:38
Speaker 1: certain changes. I guess I just thought things were going
53:42
Speaker 1: to since it had happened that way before, it was
53:44
Speaker 1: going to continue largely to happen that way going forward.
53:48
Speaker 1: And that's not how it happened. Uh. Quite quite fascinating, Mario.
53:53
Speaker 1: Thank you for being so generous with your time. The
53:56
Speaker 1: when when this nonsense is all over, UM, we'd love
54:00
Speaker 1: to have you actually in the Bloomberg building to do
54:04
Speaker 1: this live and in person. It's it's a different experience. UM.
54:08
Speaker 1: We're all trying our best under lockdown, but I'd love
54:11
Speaker 1: to have you back to to continue this conversation. I'd
54:15
Speaker 1: love to do that. I mean, it's interesting. I've said
54:17
Speaker 1: to people, I'm I'm an introvert and I thought this
54:19
Speaker 1: would be right up my alley, like I would thrive.
54:22
Speaker 1: And what I've realized is the ability to see people
54:24
Speaker 1: in person, the ability to exchange five minutes in the hallway, UM,
54:29
Speaker 1: is a vital vital to how we operate, how we live,
54:33
Speaker 1: how we learn. UM. And it's just it's amazing to
54:35
Speaker 1: me how much how much I miss it, and I
54:38
Speaker 1: suspect how much we all miss it. So so let
54:41
Speaker 1: me slip in one final question. All this talk about
54:45
Speaker 1: the end of cities, the death of the office, the
54:48
Speaker 1: ability for everybody to work work remotely, how much of
54:52
Speaker 1: that is just hype from within the lockdown. And as
54:56
Speaker 1: soon as we get the opportunity to kind of return
54:58
Speaker 1: to normal, a lot of things might end up going
55:02
Speaker 1: back to the way they were. I think I think
55:05
Speaker 1: we will return much more quickly to the way we
55:08
Speaker 1: were than anyone anticipates. And I offered two anecdotal things.
55:12
Speaker 1: One is looked at China where they basically gotten rid
55:14
Speaker 1: of the virus um it is and and people I
55:18
Speaker 1: know in China tell me it is largely the way
55:20
Speaker 1: it was before. Other than international travel. People are going
55:23
Speaker 1: to movies, people are going to restaurants, people are going
55:26
Speaker 1: to parties, and I think we will be the same way. Um.
55:29
Speaker 1: The other thing that's interesting is just at Hamilton Lane
55:31
Speaker 1: before the pandemic, we were moving our offices in March.
55:34
Speaker 1: Before the pandemic, we asked our employees whether they wanted
55:37
Speaker 1: to work remotely, meaning did they want to be in
55:39
Speaker 1: the office less than outside the office three days a
55:43
Speaker 1: week or more, and it was something wanted to work remotely,
55:47
Speaker 1: that this was really good. We asked the same thing
55:49
Speaker 1: a couple of weeks ago, because we're going back to
55:52
Speaker 1: the office on a voluntary basis, like one day a
55:55
Speaker 1: week if people want to go back. In certain groups
55:57
Speaker 1: out of the client and investment teams, one percent of
56:00
Speaker 1: the people said they did not want to work remotely,
56:03
Speaker 1: did not um And I think that's it's telling. I
56:06
Speaker 1: think people before this pandemic and during the pandemic, there's
56:10
Speaker 1: both the feeling of uh, you know, changing the way
56:14
Speaker 1: we live as good and during the pandemic. Nothing will
56:16
Speaker 1: be back the same. No, it will come back much faster. Sure,
56:21
Speaker 1: business travel might be a little bit less because we've
56:23
Speaker 1: all realized we don't need to go all over the
56:25
Speaker 1: place ten times a year, but leisure travel, all of
56:29
Speaker 1: the stuff we want to do together. It will come
56:31
Speaker 1: back very very quickly once once we're certain we're not
56:34
Speaker 1: going to get the the virus. Thanks Mario for being
56:37
Speaker 1: so generous with your time. We have been speaking with
56:39
Speaker 1: Mario Gianninni. He is the CEO of Hamilton's Lane. If
56:44
Speaker 1: you enjoy this conversation, well, be sure and check out
56:47
Speaker 1: any of the other fifty or so we've done over
56:50
Speaker 1: the past six and a half years. You can find
56:53
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57:00
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57:04
Speaker 1: Give us a review on Apple iTunes. Write to us
57:07
Speaker 1: at m IB podcast at Bloomberg dot net. You can
57:12
Speaker 1: check out my daily reads at rit Halts dot com.
57:15
Speaker 1: You can read my weekly column at Bloomberg dot com
57:18
Speaker 1: slash Opinion. Follow me on Twitter at rit Halts. I
57:23
Speaker 1: would be remiss if I did not thank the crack
57:25
Speaker 1: staff that helps put together these conversations each week. Tim
57:29
Speaker 1: Harrow is my audio engineer. Michael Boyle is my producer.
57:34
Speaker 1: Michael Batnick is my head of research. Atika val Brund
57:38
Speaker 1: is our project director. I'm Barry Rit Halts. You've been
57:41
Speaker 1: listening to Masters in Business on Bloomberg Radio.