10+ hours of podcasts, in 5 minutes.
11 quotes from 1 episode on How I Invest, each with a timestamped link to the source.
Michael Fisch states private equity relies on human bandwidth and cash flow generation. Dedicated functional experts create an operational edge by augmenting incumbent management and executing complex system updates.
American Securities retains more than 80% of incumbent executives from the initial investment through the final exit.
“…more than 80% of the CEOs who were there when we invested in the company were there when we exited or are there with us today…”
The firm employs an internal group of functional specialists that outnumbers the core investment team.
“…the largest sector of our firm for years now, bigger than our investment team.”
Individual investor accounts represent a zero-allocation capital pool larger than the entire institutional market.
“This whole new set which is at zero and it's bigger than the entire institutional market, the individual investor market. So yes, it's a tsunami.”
Early private equity practitioners built an edge by underwriting deals on pure cash generation. Financial models stripped out accounting metrics like depreciation to value real cash flow over reported net income.
“And for the rest of our Goldman Sachs M&A activity, most of the clients and the buyers were public companies. And the complete focus of the financial analysis was is it accretive? Which is to say, if we do the acquisition, will our earnings per share go up creative versus down dilutive? And these other people weren't looking at that. They were looking at cash flow.”
“And the depreciation isn't cash. And I don't care about EPS, earnings per share, net income. I care about cash flow. And this, you call it a religious war if you want, just looking at it from a different perspective was interesting to me.”
Capital operates as an undifferentiated commodity. Dedicated internal resource groups create value by managing heavy operational tasks and helping incumbent company executives succeed.
“Because as I tell prospective CEOs, it's not that our any of our people are necessarily better than your people. It's that your people have a day job. And our resource group day job is to help your people win.”
“Money is the ultimate commodity. So all private equity firms in a sense are in a commodity business, but we're really in the people business.”
Credit lenders scale investments by buying larger percentages of debt tranches without adding headcount. Private equity deals demand dedicated human bandwidth for underwriting and governance.
“Whereas in private credit or debt, there's infinite amounts of debt out there in the world. There's companies that are issuing tons of debt and instead of being 1%, you can be two or five or 10% if you have more money. It's still 1% of your funds, but there's it's easy. The same people can invest a lot more money. Private equity is harder that way.”
“…you could name on less than two hands the number of players.”
“The metaphor to mortgage is a very easy way to understand private equity leverage buyouts…”
“As a general rule, private equity really different than private credit and some other things…”
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