Growth of Private Equity in a Challenging Environment: the 23rd Annual Private Equity Conference

Twenty-Third Annual Chicago Booth Private Equity Conference, March 1, 2024 at the Marriott in Chicago.

Last week the Polsky Center and the Chicago Booth Private Equity Group hosted the 23rd annual Private Equity Conference, bringing investors, students, and entrepreneurs together to network and share insights into the dynamics of investing in a constantly changing economy.

Through panel discussion on trending topics, keynote presentations from esteemed industry leaders, and networking opportunities, the conference builds on Booth’s tradition of bold and thoughtful conversation focused on providing private equity practitioners with knowledge from both industry and academic that would be hard to find in any other setting.

The event kicked off with opening remarks from Yong Cho, MBA ’24, and Anisha Khosla, MBA ’24, co-chairs of the Chicago Booth Private Equity student group; Samir Mayekar, associate vice president and managing director, Polsky Center; and Madhav Rajan, dean of Chicago Booth and George Pratt Shultz Professor of Accounting.

With more than 500 attendees, including students from 13 universities, 26 states, and several countries, this year’s conference was the largest to date – a clear indication in the growing interest of PE at Booth, Mayekar noted.

Rajan highlighted the importance of these events, bringing together industry professionals and students, to cultivate fresh, creative ideas to tackle the challenges of the future.

Pursuing a Career in PE

Rachel Arnold, senior managing director and cohead of Endeavor Fund, Vista Equity Partners, began the conference with a discussion with moderator Laura Born, MBA ’91, adjunct professor of finance at Chicago Booth.

Rachel Arnold and Laura Born

Arnold started by acknowledging the growth of PE, addressing the full ballroom space, which for a similar conference would have been only a few tables when she began her career. She went on to share insights into how she operates her business and invests with a focus on adding value. She also discussed the importance of learning generative AI, how public markets are no longer the only option, and the benefits of being a specialist.

When looking at the future of PE, Arnold emphasized importance of diversity in the space.

“When I look at the industry, we’re still struggling on diversity,” said Arnold. “Some firms, like Vista, are doing better, but we need to see more industry investment in diversifying the talent pipeline by strengthening the pathways that lead to PE. We all benefit from having people with different backgrounds and perspectives in the space.”

She also gave advice for those in the audience that are interested in pursuing a career in PE.

“There are a few traits that I consistently see in people who are successful in this field,” said Arnold. “First, be strong in who you are – know your strengths, weaknesses, and be self-aware. Second, choose a craft, not a career. It’s hard to find, but if you haven’t found what drives you, keep doing the work until you do. Third, act as an owner. The individuals who show up, are fully engaged, and invest in the outcome stand out. These are some ways that great talent differentiates itself from good talent.”

Real Assets Panel

The real assets panel discussion was moderated by Richard French, founding partner, Atlantic Global Risk, and featured Bruce Cohen, MBA ’89, cofounder and CEO, Temerity Strategic Partners; Thomas Grusecki, MBA ’19, managing director, Stockbridge Capital Group; John Rutledge, MBA ’94, founder, chairman, president and CEO, Oxford Capital Group; and Saish Setty, general counsel, Parallaxes Capital.

The group juxtaposed the real estate industry to traditional private equity–emphasizing how all actions come in at, or below, the asset level as opposed to the parent company level.

With perspectives from various sides of the industry, some explained that they focus on finding assets and then bring in operators, while others have the operator reach out to them for capital.

“Real estate has a broad landscape which has been institutionalized and has a lot of sophistication, which people coming into the field today can benefit from,” said Rutledge. “If you want to be a scrappy entrepreneur and have an idea which you want to get capital for, you can do it. If you want to be a partner at a major real estate equity firm and work on that side of it, that’s out there too.”

The group also discussed the impact of the pandemic and rising interest rates on the industry.

“Covid changed things up and over the last two years, we’ve had a dose of reality,” said Grusecki. “However, real estate is not in distress, we’re just experiencing a healthy devaluation in the space.”

The Employee-Ownership Model

Pete Stavros, partner and cohead of global private equity, KKR, served as the second keynote speaker of the day. In his discussion with moderator Steven Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance, Chicago Booth and Kessenich E.P. Faculty Director for the Polsky Center, he discussed his approach to the employee-ownership model, which provides stake of the company to every employee.

Stavros’ interest in this sort of structure started when he was a child.

Pete Stavros with moderator Steven Kaplan.

“I come from a blue-collar family, my father was a construction worker and the conversation at the dinner table gave me perspective on what it’s like as an hourly worker,” said Stavros. “It’s hard to get ahead and no one listens to you even though you’re the closest to the work. My dad had a dream of profit sharing and that left a mark on me.”

Stavros also shared a story from early in his career, where he had to personally call each member of a business following a sale to ensure finances went through. The different perspectives of each person he called strengthened the lessons from his father.

“I started with the CEO and other presidents who all confirmed they received the money and then moved on,” said Stavros. “As I started getting to the more mid-level employees, the calls were different as I could tell they were so overwhelmed with joy about receiving the money.”

“I thought about what could happen if everybody had ownership of a company, and realized how much untapped potential there is in companies from people being left out,” Stavros continued.

Even through sharing ownership means his investment firm initially takes a slightly smaller percentage of the deal, Stavros emphasized that in the long run, the returns far outweigh other options.

“We have a lot of data that shows when employee-ownership is done right, there are huge returns for companies,” said Stavros.

And beyond the benefits for the company, there are also benefits for the economy.

“We peaked at around a 40 percent quit rate in the U.S. because people are running from job to job, which doesn’t position them for financial success, and in turn hurts our economy,” said Stavros. “All the reasons a CEO needs stock in a company for motivation are the same for factory workers.”

Hiring and Investing in CEOs

Chairman and founder of ghSMART and author of “Who,”, Geoff Smart led a discussion on how to hire and invest in the right CEOs.

“When I started doing research on this topic, I collected data from 76 different private equity investors on how they spend their time on due diligence,” said Smart. “I was hoping to show the effect of hiring the right people, and what I found was a 400 percent delta between investors who spent time and energy systematically collecting certain data on the management teams they invest in versus those that don’t.”

Smart outlined four steps: create a scorecard with the criteria you will use to hire; source talent from your existing employees; select the right candidate through structured interviews; and sell yourself to persuade candidates to join.

Making the right choice will make a big impact.

“You will be more powerful as an investor or CEO if you can nail hiring the right person,” said Smart. “You will receive greater fulfillment of your mission, bring greater returns to yourself and your investors, and you will have more time in your day for work-life balance.”

Technology and Tech-Enabled Services

The Technology and Tech-Enabled Services panel featured Anthony Caporrino, managing director and head of U.S. transaction advisory group, Alvarez & Marsal; Alex Fisher, director, Madison Dearborn Partners; Rory Kenny, MBA ’18, principle, Shore Capital; and Ankur Rathi, partner, Sunstone Partners; and was moderated by Samir Patel, partner, Willkie Farr & Gallagher.

The panel began by defining what tech-enabled services means, which spanned from any company that provides SaaS or a web platform, to companies that have a proprietary technology or the ability to scale directly through technology.

Technology and Tech-Enabled Services Panel.

The group went on to talk about the macro environment of tech investment, which saw a peak in 2021, but has since seen a dip.

“It’s a tale of two cities between companies focused on growth and profitability,” said Fisher. “Companies in tech that were hit the most were those that were focused on growth and growth at all costs, which you see a lot in tech, and that’s where you see a lot of the value erosion happening. The companies more focused on profitability that have strong margins are where we are seeing valuations hold up.”

A hot topic in any industry, the group also discussed the impact of AI, expressing the power of being able to utilize it as a tool. They closed by discussing the importance of cyber security in their field, and how it’s a critical component of each deal as massive fines from cyber security issues can kill any deal and ruin any chance of returns.

Closing Keynote

Carl Thoma, founder and managing partner, Thoma Bravo, provided the closing remarks for the conference. Thoma was a cofounder and managing director at Golder, Thoma, Cressey, Rauner and its predecessor funds since 1980. He began his career at First Chicago Equity Group where he helped build one of the largest and most active private equity firms in the country. He is a recognized pioneer of the buy-and-build strategy.

Carl Thoma.

In a discussion with moderator Chris McGowan, adjunct professor of entrepreneurship at Chicago Booth, and investor-in-residence at the Polsky Center, Thoma shared his thoughts on the evolution of private equity over time and highlighted the importance of operating partners in today’s environment.

“To make money in PE now, you need great operating partners who can step in and coach company leadership on executing on their improvement plans,” said Thoma. “Most partners are CEOs that come from other PE-backed companies, so they know what it’s like. It’s an integral part of all private equity today and every major successful firm has good ones.”

During his career, Thoma has had an impressive record of improving the top line. The secret, however, isn’t that complicated.

“We hire additional sales people to anticipate turnover and have systems in place to track what we do – standardization and metrics help,” said Thoma. “It sounds basic, but if your people are focused and execute on the right activities, sales calls for example, you will get results.”

Article by Darwin Minnis, associate director of media relations and external communications at the Polsky Center. Darwin has a passion for telling the stories of the people, products, and companies that are making a positive impact on their communities. Reach Darwin via email.

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