You've seen a lot of different business cycles.
A lot of different economic cycles. How does the one we're in right now
stack up to the ones you saw in the past?
I started my career in October 1, 1981, when 10 year treasuries were fifteen
point eight percent lived through over the 87 and all that, I would say this is
not a crisis like 0 7 or 8 or like Covid.
It's kind of muddy, rainy weather in the economy.
But, you know, our portfolio is doing very well.
I think private equity is an asset class is still doing quite well.
You mentioned eighty one year. There's been so much talk about folks
who haven't really had to operate in a high interest rate cycle, growing at 5
percent roughly on the Fed funds rate, a far cry from the 15 to 20 percent back
during the Volker days here. What did you learn from that Volcker era
cycle that can be applied to Wolverine today?
Yeah. Well, you know, the I came at the end of
13 years of stagflation. The stock market was lower in 1981 than
had been in 1968. And it was all about inflation
accounting. You know, the key to private equity
today is take a safe business and build it.
So private equity is really available for it's a form of governance and
business building. And if you take a safe company and have
the skill to improve it, you can make money in all markets, but you can't just
wait for markets to go your way and sit there passively.
What's been the response you've gotten as of late from some of the big
institutional investors, primarily pension funds and their embrace of
private equity, which we know was pretty relentless over the last couple of
years? Have they backed off at all from some of
that? I think private equity has really
outperformed again in this last cycle. So I think it's been their best asset
class. Their issue is everything else has
underperformed. And so private equity's percentage of
the pie gets bigger because the rest of the pie is shrinking.
So that will adjust their adjusting for that over time.
And then new investors are entering all over the world and Asia and all parts of
the world are entering the market. So it's it's still very much a growing
asset class. What's the opportunity, though, for
something that has grown into a behemoth?
I mean, when you started this business, I mean, private equity was niche and it
is now dominant. Yeah, it's gone from when I started.
There were 20 private equity firms. Today there are 5000 firms owning 30
thousand companies. We employ 12 million people.
We're six and a half percent of the US economy.
But that being said, it's just a form of owning a business privately like family
shareholders. But having the skills of a big,
sophisticated corporate group. So the combination of hands on
shareholding plus sophistication leads to good results.
I was trying to look around to some of the trends that we've been seeing in the
peace space. There was a lot of talk about carve outs
and how that has to come, at least for a certain pocket up, be a real place where
a lot of folks have been pushing. Yeah, well, we just did a big carve out.
We just bought a two billion dollar piece of Perkin Elmer, which was a very
complicated, sophisticated carve out. And it's a great place to be as a buyer,
but you need to have a lot of sophistication to be able to create the
company and create it from scratch. You need to really have a lot of
credibility with the seller that you're going to do what you say or what to do.
But it is a good area for a buyer. Does it change the complexion of due
diligence that you would have normally done in the past?
Well, we you know, we we had 10 operating partners doing due diligence
on that deal and a team of 17. And we had months to do the due
diligence because we just closed last month ago after we agreed to buy it last
summer. But that's just in general, private
equity is getting much more operational and our firm's really stressing that.
Just last question here. I mean, you talk about five thousand
firms or whatever it is now versus the 20 that you saw when you started.
There's been a lot of talk about whether this private equity as an asset class,
as a business, has gotten a little frothy, has gotten a little bubbly,
because you have so many players all seemingly chasing the same clients and
chasing the same deals. Well, I think that I think the evidence
is that private equity returns have just outperformed year after year.
You would have thought in this last crisis private equity would have been
the problem. It was actually Treasury bonds were the
problem because it's a game of skill. And if you're good at taking a business
and building it, it's a huge world. There's tens of thousands of companies
and there's still room for skilled buyers if you can build a business.