“Make Private Equity Great Again.”
Can the Operating Partner role “Make Private Equity Great Again?” Maybe we could print up some hats! Seriously though, borrowing the phrase in a playful manner and applying it to Private Equity got me thinking a bit. Can Operating Partners play a role in humanizing our industry?
Certainly, the PE industry is subject to the public’s (and the media’s) suspicion relative to whether it’s a good thing for the world economy. And in all honesty, sometimes PE is its own worst enemy when it comes to public relations. Ivy League financiers, Goldman alumni, Wall Street debt experts… all accurate descriptors in many ways, but none of those phrases leaves a working class guy with a warm and fuzzy feeling. How can Operating Partners factor into the mix and possibly change up the perception?
Stick with me for a minute on this one. An Operating Partner is good at what they do because they’ve actually been inside a real operating business and dealt with the realities of competition. They’ve walked the shop floor. They’ve fixed the press when it’s gone down. They’ve run a staff meeting. They’ve optimized people’s abilities, and in most cases haven’t been surrounded by the 140+ IQ’s that trip over one another at Goldman Sachs. Operating Partners are the closest thing to Main Street in a Wall Street industry.
This can be seen when it’s the Ops Partner at the management meeting who makes the best connection with the founder/CEO who’s worried about his employees and his family’s legacy. It’s the style points of reading a room and delivering something bespoke to each of the decision makers to influence the right choices in tough situations. It’s the gray hair on the temples that inspires a comfort level around time spent in the foxhole.
Compared to most of the environments that forge a good Operating Partner, PE firms (by their very nature) are small, underdeveloped companies. There aren’t many employees. They are for the most part homogenous in the backgrounds. They’re clustered in certain geographies. They’ve worked mainly in small teams in their careers… It really isn’t hard to understand why a guy running a family owned healthcare distribution business might have trouble connecting to the typical PE investment professional.
Yep… relatability. It’s an attribute of a great Operating Partner.
“Spread the Wealth”
Back when PE really only focused on exotic financial engineering, there wasn’t much of an opportunity for the rank and file in a business to participate in the upside. Businesses would be bought and sold, and the employees were simply along for the ride.
However, in today’s environment when creating value involves more than financial engineering and in fact revolves more purposefully around growing the EBITDA in a business, there IS an opportunity for Joe Worker to see some subjective upside given bonus and profit sharing programs. The Operating Partner is at the heart of this type of operational improvement. But for that Operating Partner working to impact the efficiencies in the business and even specifically re-architecting the comp plan, the employees in the business might never get the satisfaction of being vested in the company’s success. The more times that the industry can reinforce the message that when the PE firm wins, the employees win too, the better off our asset class will be.
Once again, it’s the Operating Partner at the center of that story.
Lastly, there’s an idea that with earlier exposure to Operating Partners, the next generation of investment professionals in PE will be more well rounded in how they think and act. It’s useful for the young deal people to have perspective on the real world conditions associated with running a company. It’s the anecdote and battle scars that paint a vibrant picture that doesn’t come through a spreadsheet. Sitting at the knee of a savvy, retired CEO could be more formative for a young deal professional than any comparable relationship they’ll get in their early careers. And in retrospect, the entire industry may be better off for having fostered this condition.