Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Daniel Schwartz
[00:00:00] S0: The AI automated workflow. [00:00:00] S2: Exactly. We're just not that. We've managed to stay pretty disciplined, to stick to good, relatively easy-to-understand, well-moated businesses that we and our partners here could kind of wrap our heads around. Businesses that have ideally been around for a long time, with strong brand franchises that we could own and grow and maybe improve a little bit. [00:00:00] S0: As Munger used to say, "Show me the incentives, I'll show you the outcome." In addition to the one investment per fund, I'd love to understand the other distinguishing features of how the capital is set up, who the LPs are, what the incentives are, how the fees work. Because almost everything you do is a little bit different than the traditional model. Maybe you could walk us through what those are, because those then determine the outcomes.
· Patrick O'Shaughnessy, Alex Behring
[00:00:00] S0: As Munger used to say, "Show me the incentives, I'll show you the outcome." In addition to the one investment per fund, I'd love to understand the other distinguishing features of how the capital is set up, who the LPs are, what the incentives are, how the fees work. Because almost everything you do is a little bit different than the traditional model. Maybe you could walk us through what those are, because those then determine the outcomes. [00:00:00] S1: Two of the things that are different – two or three of the things – one is the proportion of house capital. We and our group of co-founders and partners and whatnot, are the largest investors on each and every deal that we do, number one. Number two, the balance of the capital that's not ours, is different from a traditional PE firm. In the sense that it's a much higher component of high-net-worth individuals and families around the world. Some sovereigns also, but a very different LP base. And also the fact that we over the years have devised mechanisms that allow us to be invested for a long period of time. We invested in RBI for 15 years and counting. So I think those are the three main differences.
· Daniel Schwartz, Patrick O'Shaughnessy
[00:00:00] S2: One additional large difference in our case is the folks here have largely all been in both investing roles and operating roles. And so, in Alex's case, he was the CEO of the largest Brazilian rail and logistics company – the largest Latin American rail and logistics company. I was the CFO and CEO of what was Burger King and now is today Restaurant Brands International. That applies to some of our other partners here as well. I think this experience of being an operator and an investor allows us to ultimately be a better investor. And allows us, when we get involved in these businesses, to be able to send our own people in, who are partners of ours here, who have also been CEOs and CFOs and operators of businesses, and who are well incentivized to create value at the company that's directly linked and aligned with us and our limited partners. [00:00:00] S0: If you think about this unique nature of it being so much house capital, you're on the line with all of your LPs. And you think about the search for, let's say, Hunter Douglas, which was a transaction three or four years ago. Talk about the length of time that you're willing to engage with a company, maybe in that specific case, how long it took you to get to know that business and how the transaction came together. These are very unique ways and long durations, and I'd love to just put some meat on those bones.
· Patrick O'Shaughnessy, Alex Behring
[00:00:00] S0: If you think about this unique nature of it being so much house capital, you're on the line with all of your LPs. And you think about the search for, let's say, Hunter Douglas, which was a transaction three or four years ago. Talk about the length of time that you're willing to engage with a company, maybe in that specific case, how long it took you to get to know that business and how the transaction came together. These are very unique ways and long durations, and I'd love to just put some meat on those bones. [00:00:00] S1: I met Ralph in the mid-2000s, first in Switzerland, and then we got also close to his family here, the two sons. One resided in Greenwich ‘til recently, and the other one resided here near the city. And had a good relationship going for a long time. I think that not until a few years ago, as Ralph aged, and he was trying to organize his family affairs. And he was trying to carve a solution for the fact that one of his sons wanted to remain involved in the business, which is David, our partner. And he also cared what happened to Hunter Douglas following 100 years in the family. And that's the context in which we started a conversation. But that was already 2021, mid-year. I visited him in Switzerland, in his home, and had a conversation about it. And he was then brainstorming what to do. And I think the outcome of that conversation was that he would give us a window to present him with a proposal. And then, if he liked that proposal, he would move forward. That's sort of how it started.
· Alex Behring, Patrick O'Shaughnessy
[00:00:00] S1: I met Ralph in the mid-2000s, first in Switzerland, and then we got also close to his family here, the two sons. One resided in Greenwich ‘til recently, and the other one resided here near the city. And had a good relationship going for a long time. I think that not until a few years ago, as Ralph aged, and he was trying to organize his family affairs. And he was trying to carve a solution for the fact that one of his sons wanted to remain involved in the business, which is David, our partner. And he also cared what happened to Hunter Douglas following 100 years in the family. And that's the context in which we started a conversation. But that was already 2021, mid-year. I visited him in Switzerland, in his home, and had a conversation about it. And he was then brainstorming what to do. And I think the outcome of that conversation was that he would give us a window to present him with a proposal. And then, if he liked that proposal, he would move forward. That's sort of how it started. [00:00:00] S0: So sort of a 15-year investment of time to get that window? [00:00:00] S1: In this case, that's right.
· Alex Behring, Daniel Schwartz
[00:00:00] S1: In this case, that's right. [00:00:00] S2: I like that we're inserting the word "window" here many times, but maybe just some additional color. You had a long-standing relationship with Ralph. I had first met David in 2007. David is Ralph's son, who is now our partner in Hunter Douglas. He rolled his shares into the transaction a few years ago. They invested alongside us in Burger King. We built a good relationship, lots of mutual respect. David came down, Alex – Alex, I guess and I organized to have some of our partners come visit us in Burger King in 2011 or 2012. And we gave a presentation on what we were doing, and I remember spending time with David. And he said, "This reminds me, in some respects, of Hunter Douglas, this kind of entrepreneurial, startup-type culture in a traditional business." And we kept tabs on their business through the years as well. And we watched David do some transformational acquisitions along the way to evolve that Hunter Douglas business to become even more direct-to-consumer. So to go to both selling through dealer and direct-to-consumer. We were big admirers of that business for many, many years. And we had the history of following the business for many, many, many years prior to Alex and Ralph chatting about succession and next steps for the business. So we played the real long game. [00:00:00] S1: David did really sort of shape the company through those deals, I think. [00:00:00] S2: He did. David evolved Hunter Douglas into a business that we had an even greater appreciation for 15 years after meeting him.