YouSaid · the spoken record

John Connaughton

lines on the record

86

first

2021-06-28

most recent

2021-06-28

sittings or episodes

1

sources

podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

1. “Way, this is a lot worse today, I think, for kids, and I hate to say this, but there's this question of conformity. Do you live a life of doing the things that you think are the things that other people are doing and the thing that is kind of the traditional path? Or do you meet the same friends? Or do you actually embrace diverse perspectives or difference? I just found over time in life that you just want to have more experiences with more difference and more different contexts. And if you start the first part of your life conforming and trying to do what people want you to do and go down a certain path, I think it's very limiting in what it opens up for you as a life. And so it's kind of one of the things I miss right now is traveling. I really miss seeing the perspective of my on-the-ground partners and management teams in Asia and Europe and Brazil. And that's sort of the nature of something that I think is important for people to consider.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “They're very optimistic people. I wish I had their optimism. It's like that old golf saying, you know, it doesn't go in the hole unless you put it there. And they're very optimistic people. And if you're going to have an ability to achieve what you want to achieve, you have to start off the premise that it's possible. They had five kids. They were Irish immigrants. I was the youngest of five. So the lessons always didn't trickle down to me, but they were very optimistic and they made us all believe that we could do what we wanted to do. It seems pretty simple, but it was meaningful.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “This is pretty dark, actually. I took this business school class called Moral Reflection through Fiction. Actually, it used to be a Harvard class. My wife took it when she was there. I think they called it Gilt 101. But one of the books they made us read was The Death of Ivan Ilyich by Tolstoy. It's pretty dark about a guy that has a terminal illness and his wife and daughter not being very supportive. But the truth of it is it was somebody who had never looked into himself and decided how he wanted to live his life and have a life of meaning. And it's this dark context where he sees what it means that he wasn't doing to have a moral life of impact. I would encourage anybody to read it. It's a novellus. It doesn't even take that long. There's a lot of great lessons that came out of that book that I carry with me here.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “I have this very simple saying if you don't understand it, don't invest in it. I invest it in something where it was growing incredibly fast. We got a great deal on it relative to anybody else. We had an angle on it, but the model itself was pretty darn complicated. And it didn't pass the elevator test of really something that had longevity and robustness that the metrics would suggest. And by the way, it was interesting. We had a tombstone for the closing. It was called a rocket ship, which kind of was a bad sign. And it went really well for about a year and a half. And then all those unravelings of the business model happened, and we lost all our money. So I think in investment committees, what I've learned is ask the simple questions, like, do you understand how this business works? Don't just look at the numbers and the financial trajectory. Do you understand? It's a very simple question. But oftentimes...”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “I think that there's a lot that's known facts in the world today. I mean, you can get your hands on consensus perspectives and secondary views. And there's just a lot of data out there that everybody knows. And so what I dislike the most when somebody starts talking about an investment thesis is they talk about what everybody else knows. Because by definition, that's a commodity. And so what I like to tell people is like, you've got to come into my office and tell me what you uniquely have as a point of view. What is your unconventional wisdom? What is your insight about something that other people are not seeing in a consensus context? So again, even like management says, it's like, well, okay, but management's going to say the same thing to everybody. So that's conventional wisdom. So that's kind of a pet peeve I have when I try to dive deeper into the Admiral Stockdale question, who are we and why are we here and why are we going to win this asset today?”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Have this thing called being at cause. It's a pretty philosophical view that people talk about a lot, but this notion, rather than feeling something's happening to you, Look at your own self and say, what is it that I could have done? What I don't like is when people come into my office and say, well, gee, this has happened to me, and what can you do about it as opposed to, no, no, here's what I would like to do about this. This is what I'm going to do about it. Here's the problem. And that is a very different orientation, but I think it's a really important one, particularly in our business where we're empowering people to be leaders very early on.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Wasn't always this way. I was one of those persons that, like, between college and 40, I thought I could eat anything. I could do anything and it would all be fine. And then I started gaining 10 pounds every five years. My wife got me straight. She's a fanatic workout person. So even though I'm not a morning person, even though I failed to work out for that decade since 40 every day, I'm out there at 6.30. And I don't like to do the same thing. And actually, it's fun because I get to do it with my wife when I'm not traveling. We work out together, which people think that's really kind of strange, but it's a great habit. It's also a lot of fun.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “I used to be at a band in high school. It was a really bad band. I think it was, by the way, it was a punk rock band. I think it was called Shattered Voyage. And so I've always had this unfulfilled creative side. I've on board a Berkeley music and I get a lot of concerts and musical performances. I still play with my daughter every once in a while. So I have this unfulfilled creative thing that I try to get out of my system as often as I can. I even still organize haunted houses. I was one of those kids that got all the neighborhood kids together. And so I love that side of my life that's quite a bit different.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “To know based on you're on the ground view of these things. And so that collaboration, it's not mercenary. It's not transactional. It's not incentive-based. It's actually because there's synergy in that collaboration. And that happens every day. That's why we can have a team across the globe, across three verticals, across two of our business units. Accomplish a tesheba or a virgin airlines. It works because it's organic.”

   2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “And then they ask, okay, well, what about these new business units, though? I mean, how are you going to get the life sciences business to work with your private equity business? Don't you need to give them economics and have, and I say, honestly no. And so the secret sauce that they don't get is that the reason why they want to work with each other, the reason why we have the longest tenured Asia head, Japanese head and India head, and by the way, every other sponsor, they turn over like every minute. The reason we've had people there for 15 years in those seats is because they know that when they pick up the phone and talk to somebody they need to talk to about retail or healthcare or help me out with this capital market transaction. They know somebody on the other side is a bank capital person that wants to work with them, independent of economics, because they know that they're going to call back the head of China one day and say, Jonathan, hey, tell me about what's going on with the auto sector. I really need to.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “I tell the story and it's so nuanced, which is, you know, everybody asks me, like, what's your compensation philosophy? And how do you actually pay people based on their own performance? Aren't you worried that somehow if you're not providing microeconomics in their own internal behavior, the whole thing's going to fall apart? And I say, no, investment careers, they get judged over time, and you have to look at the mosaic of the entire set of activities.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Positive side of this, of course, is that there are incredibly great virtues if we do it right. I mean, I think we are long-term in our orientation. We do control these companies, so we can make ESG efforts happen. We can control boards and make diversity happen. We can create a constructive stakeholder engagement more broadly and build and grow businesses. The way I think we do, and if we get that right in this next chapter, not only will we be not negatively stereotyped, but will actually be the constructive force I think we are in an environment that's looking for that kind of solution. And so I think it's a very interesting inflection point. I see enormous activity in our own firm, but also even at other firms in our industry. And I think that's a real bullcase for private equity in this next chapter.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Think we're at an incredibly important inflection point, and I thought we've been here before, but I think we're at one again, and frankly, I think it's a bit of an existential crisis for our industry. And I really mean this. We have an enormously negative stereotype that's associated with our industry. And I think it's incredibly inaccurate, but nevertheless, perception is reality if that's the conventional narrative. Now, what's interesting about our industry, particularly in the nature of what's happening in the corporate world more broadly, is that people are focused on multiple stakeholders. People are focused on long-term impacts that are not visibly seen in short-term exposure. And so this notion of what is it to be a good steward in the corporate world and how that affects how people view the corporate world, I think that's times 10 in private equity in terms of exposure and adversity if we don't do it right.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “So I think when you sort of look at the strategy of an investment firm is what are they aspiring to do? Are they trying to achieve that return? How are they going to do it, obviously? And do you feel like the portfolio construction lines up relative to that? Because I find too often that people are saying, okay, we're going to generate 20% return, but it's not about 20%. It's about the asymmetry of that return and how much upside can you get? And so I think it's just a different orientation towards portfolio construction that I think needs to be understood and studied better.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “One of the philosophies that I bring to our own investment activity is we are trying to do something that's pretty hard. We've earned over 1,000 basis points higher than the private equity mean during our history. And part of the reason that we're able to do that is one, it's pretty simple. We aspire to do that. A lot of people don't. A lot of people basically are targeting maybe premium returns, but they're just largely looking at averages and saying, hey, look, if I could put more money to work at a return that's acceptable to investors, then I'll just put more money to work. Whereas our optimization function is, hey, I want to earn an exceptional return. And the reason that's important in our business is portfolio construction. If we could have 15 shots on gold, to make three to, in some cases, ten times our money, we won't do it every time. But if we do it a third of the time, then we're going to earn that $1,000 basis points premium.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “I know from your experience in working with a lot of LPs and being on some committees, you've been on the other side as well, what are some of the lessons that you've learned from sitting on investment committees that are kind of broadly applicable for chief investment officers in those seats?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Alpha is all about the manager, you know, it's not about the asset class. So not only have we learned that we want to invest behind some of these managers that are in that fund, we've actually seeded some of them. So we actually want a piece of this GP. So it's taken it one step further to say, look, we want to make sure we qualify this for our own capital. We also want to make sure we can even invest behind making that business scale. And so that's how we looked at it.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Think that effort and those investments are largely on things we don't do, although it didn't start out that way. I mean, it was a bit alike, you know, the partners had a lot of friends and we were doing direct stuff off our side of our desk and it wasn't the way to run a railroad in your own personal portfolio. And so I think we focused that effort a lot over the years to be one where we're really leveraging the white space that we're not engaged in. So merging market public equity, seeding investments in new managers that engage in activities and macro investing. And so what we've used that vehicle to accomplish is to fill in some of the white space that are not mandated by our current investment activity, which makes it more complementary and then fills out what general asset allocation might look like, at least an alternative assets. And so from that standpoint, I think the lessons we've learned.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “I know alongside of all of these direct investment activities, your partner's capital created a fund. I don't know if it's called Partners Capital that are outside manager investments. And I'm curious when you put the LP hat on. What are some of the lessons you've learned from engaging in those activities that are different from the Bain Capital Direct strategies?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “And so it's just a tool among many tools of being large is you can have a very low cost of capital and allow yourself to use your balance sheet for those kinds of strategic purposes.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Well, I think that in some ways, as I mentioned, we're a bit of a family office, right? Because just the amount of investment activity, the amount of capital that each of us have personally in our own cooking is incredibly different than their industry. And we have 15% of every dollar is our own capital. And that's multiplied by a very large dollar amount. In some ways, that balance sheet has always been there with just the personal capital supporting the business. But look, as we solve places where we wanted to incubate something new, if we need risk retention for credit vehicles that emerge from a regulatory standpoint, if we wanted to bridge certain activities across a fund and see different businesses, I think our ability to have a balance sheet was emerging as an effective tool, particularly given our scale, because the cost of capital that we can derive, a balance sheet with is very, very, very low.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

22. “You mentioned balance sheet capital, I'm curious in the evolution of the business at what point in time did you start thinking about retaining assets on the corporate balance sheet as opposed to maybe in the early years paying it out as people are generating their own wealth?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Public, and so capital, if it's required, is certainly readily available. And by the way, we're not trying to be in every business. We're not trying to optimize around assets under management. We're trying to, I say we're trying to optimize around profits under management. This high performance at scale, which means that most of our income is driven by performance, not by fees under management. And as a result of all that, it's just at this point a better model for our firm. Now, by the way, it's, Blaston's done an amazing job. All these players, they've done an amazing job. I think it just speaks to the segmentation that's going on in our industry and the strength of our industry that these different models can thrive independent if out they're formed.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Everybody asks would you guys ever go public? And I somewhat, I don't be glib about it, but I would say only if it's an advantage. Goldman Sachs was private for a very, very long time, and they realized it was a disadvantage because they had capital requirements, so they went public. Now, one of the reasons that I at least assess this trade-off is it going to preclude our ability to Expand? Is it going to preclude our ability to motivate, attract, and retain great people? And as we thought about the trade-offs of that, we found that we can attract the people we want to attract, retain and motivate them by remaining private. We can get into new businesses.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

25. “In these last dozen to 15 years, starting probably with Blackstone, you have had some of your peers go public or have vehicles go public. So I'm sure the conversations come up. What are the pluses and minuses in your eyes of whether you would ever do that?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

26. “money and wealth, but we also have a lot of people who understand that in order to make it work, they need to deliver it to that next generation. And that's different than selling it to the public market or monetizing it in a concentrated way. And it starts with that premise that we had a fairly flat. Partnership. And I think it's allowed us to retain our talent because if you're a company today that's given away half your equity, you can only give away your equity once. You can't actually give it away twice. And so right now, that's one of the reasons why our generations of partners that are leaders now stayed and are motivated by our model.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Has to be true, I think, chronologically. Our partnership is pretty different than quote unquote those peers that you're describing. I mean, there are some people who have a similar model, but we do have this saying that we're stewardship in our partnership. And obviously we're not public, we're private partnership. I think we generate actually differential returns in that group of people, partly because it's our own personal capital. But we don't have a model that is driven off of a single CEO. We do have a very deep team. And we've had a lot of succession, starting with MIT. We've had a head of Asia that moved on and we had somebody come up and become head of Asia. Same thing North America and Europe and our public equity business. So we've had a lot of experience, but part of it is we have this philosophy that it is a stewardship. I mean, this is a very attractive business to be in. You build a career of professional development and you build a career of the opportunity to make”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

28. “How have you thought about ownership and succession as now you've got a firm where you and your peers when you started are at least maybe a little bit closer to the end of the careers than the beginning?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Honestly, I talked about the GFC and some of the acknowledgements that we had around organizational change that we needed to accomplish. We also had to do a lot of performance management around people who were basically at a point in time where they themselves wanted to do something else. But I think that we also had a desire to grow, but we didn't really have the people, the right leaders to actually expand the business. I mean, a good example of this is our life sciences business, which has been incredibly successful. We had one of our partners go off to be the chief strategy officer of Biogen. And it wasn't a great time for us to expand right after the GFC, but we got them back, we put them with another healthcare partner, and now we're on our third fund that we're launching this year. So it is about people, and it remains the most challenging constraint. We wanted the Japan middle market for the last four years, but we just needed to find the capacity. And since we grow organically a lot,”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

30. “That we haven't really seen the conflict. We're not loaned to own investors and credit. We're not actually trying to restructure businesses as aggressively as some other people that are in those businesses. We're either secondary participant in credits or primary where we're not providing capital even in the same size. Our mezzanine business is mostly mid-market. And so we haven't actually seen that and certainly relative to the people that want us to finance them. It's so typical these days to see KKR Financial and GSO and Ventural Credit. It's pretty well worn path here without a lot of concern.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

31. “It wasn't until I think it was six or seven years ago that we thought, wow, it's like, let's check that premise. It actually has been incredibly powerful to rebrand all of those businesses bain capital. And we've gotten so much advantage that it really has allowed us, particularly internationally in Asia, to leverage a single go-to-market, at least from a sourcing standpoint.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Since we started so early in the debt business, in the public equity business, we were worried about this issue that you're describing, Ted. I mean, I think so worried about it that we actually didn't call those companies or those businesses bain capital. We called it Sancity for our credit business, and we called it Brookside for our hedge fund business because we were worried about you walk into a CEO who's a public company. If they see bank capital, they've got to run for the hills. Oh my God, you're going to take my company private. And same thing with credit. Can't walk into another sponsor with a bank capital. business card.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

33. “And when you've gone across from equity to credit, There's always this question of are there conflicts? You've got a privately held company who own the equity you could or may not own the debt. There's an issue if you do own the debt, maybe there's an issue if you don't own the debt. How have you thought about Working out the various potential iterations of where conflicts could arise across your products over time.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

34. “Concentrated long bets still rely on what you know, what your perspective is on an industry, what your view is on that company's strategy. And yeah, while you don't implement it like we do in private equity, it does at least hold a lot of the same pillars of long-term and industry knowledge and strategy and company assessment that our private business does. So I think the skill set does have a lot of resonance with how we go about investing even in our private business.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

35. “I think that there's different strategies in the public markets that people deploy and the ones that I think are the most successful, particularly given that the hedge fund business has had a lot of challenges over the last decade is if you sort of think about all the arbitrage that was being taken out of the market by information and factor analysis and a lot of the quantitative public investors that are out there, that's not our style and certainly never was our style but it was the style of a lot of people that were ringing out all those arbitrages and that created a business that no longer was a business over time.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

36. “Our ability to invest in our business and actually be better able to both be involved in a more competitive landscape, which is what we're in each time, but also contain to build the secular growth in the industry. I think that's the story of our industry. Every cycle that's happened. And yeah, some people get lost in those cycles. I can name a few. But I think those that invest in their platforms and learn from each prior cycle have grown and grown a lot over that 40-year period.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

37. “Actively, and then obviously efficient use of cost of capital. And so that's sort of what started this industry. And then each crisis, I think we've learned that we're better able to manage crisis than anybody because we are long-term. We have a lot of resources. We've realized we need more capabilities, so our teams are getting bigger, they're coming more specialized, they're understanding global markets better, we have capital markets specialists and talent specialists and finance specialists. And so out of each of these crises and out of each of these moments in time,”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

38. “Well, it goes back to the start of my journey is that every cycle, the prediction goes that private equity, the golden age of private equity is over. And actually worse than that, that there's going to be some huge carnage that results from the aftermath of a crisis. And it was predicted in 89, it was predicted in 2000 and 2008. And again, I think going into COVID, I think what people fail to acknowledge or recognize is that We've been on this secular journey over, let's call it 40 years where the private equity model is just fundamentally, even at its core, even if basic level, forget about how we do it, which is much more sophisticated, it's just a better model for equity value creation than any other model. And it starts off with the idea of thinking long term, public markets don't do that, active governance. We govern these companies very actively.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

39. “With a seller in that case, the equity count was of a certain size, that it made sense given our own concentration risk. So we started a journey with Advent on that payments business world pay in the very beginning. What happened is that then a bunch of other payments business came up and so it was logical for us to kind of roll into those partnerships such that we were not in any way conflicted. So anyway, I'd say there's a commercial reason. We have enormous respect for our competitors, but we want to win the deals that we like and ideally control them ourselves.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

40. “Well, yeah, there's a lot of history behind this, but if I could challenge the first premise, we're all competitors, and I don't think anybody chose to be in a club deal, to be a cooperative competitor. I think they were just doing it through their own commercial self-interest. I mean, even HCA, which I worked on, which is a $33 billion deal, $5 billion equity account at that time, there's no way that a single sponsor could do that deal. One of the reasons why this has changed a lot since the global financial crisis is that people can do deals with larger fund complexes on their own, and they choose to do that for this very reason. The only time there is a partnership is there has to be a specific commercial reason. So we've partnered with Advent, for instance, in the payment space, and we've done a serial number of deals. We've done five or six payments deals right now. But the beginning of that partnership started with they really knew the U.S. payments business. We had a strong Europe presence and a great relationship.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

41. “There's this sort of fascinating coopetition angle, right? There was a period of time, maybe it was more pre-financial crisis, where there were a lot of club deals on these bigger and bigger fund sizes. And now, as you mentioned, a lot of these businesses do change hands from a private equity owner to another private equity owner. So you're buying something in some instances from another sponsor thinking you have a differential insight. You're selling it to someone who has a differential insight. And in some instances, you're teaming up with people along the way. How do you think about Where you want to position as a competitor compared to a cooperator in the ecosystem.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

42. “To get the highest price, they'll get that, but to have the prospect of returns be judged differently by one sponsor versus another, one strategic versus another.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

43. “Seller always gets the highest price out there. There's this famous thing that partners will always bring into the investment committee. It's like we're the buyer of choice. And by the way, I believe we are. But that plus a nickel more will get you the deal, right? So I do think it matters to be the seller's choice, but I think that from this point, maybe to, I don't know, 15 years ago, you got to pay the highest price. So the only way that you can generate the kinds of returns that we've generated is, again, you've got to have a different point of view on what others don't see and you got to have a different point of view of when you see it, what you can deliver by making that happen. And so it's funny because the first derivative of this is that we sell a business all the time. And when we sell a business, there's oftentimes a sponsor that buys it from us. So they see something differently than we see. So it's the first derivative of the same thing. It's like there is an inefficiency ultimately that remains in our industry.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

44. “When it comes to winning a deal, you mentioned you're almost never just at the table with the seller. Where does the relative market power sit today between the sellers of the business and even in a situation where even there's just a few buyers in that dynamic of getting the deal done?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

45. “That you're going to create inflection, anything that's linear and high quality, we never win those. Bain capital doesn't anyway. But if it's an inflection point where you have to believe that you're going to do something, change the future, not just see the future, that's where we win. So all of those things I call sourcing. And even our portfolio team, they're in the underwriting process trying to understand can we achieve this plan? So it's gotten a lot more complicated, but all of those things I put in the bucket of sourcing.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

46. “So you do the hard work of everything that's knowable, you got to be able to have the tenacity to get the outcomes of that work done and have a judgment ultimately applied to it. But if you don't do the work, then you're really not adequately taken the calculated risk the way you should. I think that's another piece of it. Another way that deals get made, not found, is you actually position yourself relative to the counterparty. So I mentioned the Becca Gray story. You know, we have bought businesses from founders, from corporate counterparties, where we were not the highest bid, but there was another reason why they felt like selling it to us, certainty, ongoing relationship, rollover equity, pride in what they founded. There's a lot of reasons, but if you position yourself relative to the seller counterparty as being a partner, and there's a reason for that partnership and why it should work, that's another way that deals are made, not found. And then ultimately having this view.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

47. “Then you probably are overpaying for an asset. And what I mean by made is there's an element of it which is sourcing, being one of the few that are looking at it, hopefully one of two or ideally one of one, but that doesn't happen very often. You have done more work way in advance of finding that company relative to the industry knowledge, networking with CEOs, and other executives who are in and around that industry or company having the depth of experience and understanding of what that opportunity might be capable of delivering. Then you actually do the hard work. I mean, we have teams, some of our teams are as large as 40 people, global teams working even across platform. When we did Tashiba, I mean, it's a huge team, global team. We did Virgin Airlines in Australia, huge team across credit and private equity.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

48. “I think sourcing is an interesting term. We all look at assets and we see many of the same assets, but we don't see them all the same way. And honestly, we don't always get to buy the beautiful businesses. They're oftentimes ones that don't want to be sold or they're already public. And one of the dirty little secrets of private equity is we're already adversely biased against beautiful companies.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

49. “When you take that into the execution phase, and particularly in private equity, I love to chat about the sourcing environment because it's one thing to be able to look at a beautiful business. It's another, as you mentioned, like competition is so much fiercer than it was a long time ago. How do you think about where sourcing comes from these days?”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source

50. “You put it into a team. If you walk the halls at Bain Capital, you're not hearing just about deals and leverage and finance and going out public. You're hearing a lot about like, wow, this is an unbelievable company. And this is what we can do. And if we can develop these products, if we can streamline the manufacturing. And even if you look at our investment decks, 80% of it is about market company strategy and implementation of our thesis. And it's not like a lot of financial models. Now we have all those too. We have to have those. But it really is the ethos to have this intellectual curiosity and focus on both strategy and operations.”

    2021-06-28 · Capital Allocators · Private Equity Master 2: John Connaughton – Bain Capital (Capital Allocators, EP.201) · IDENTIFIED FROM THE TRANSCRIPT · source