YouSaid · the spoken record

Michael Fisch

lines on the record: 89
first: 2023-12-01
most recent: 2023-12-01
sittings or episodes: 1
sources: podcast

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“I think it is amazing to me and probably to most of the other people who started in private equity in the 1980s that this has become a massive industry. Honestly, I thought, and I think most of the other people doing it thought we were just, we just saw the world a little bit different and there were a bunch of companies which had cash flow characteristics different than their EPS characteristics. And so we could buy some of these companies and have fun working with the management teams and that this little side niche has become so huge. Is really shocking to me.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the two most important things for a career in anything is do you like the work and do you like the people? And I tell my kids that and I tell everyone I meet, you know, whatever it is, tech, private equity, something else, don't get caught up in the hype. Do you like the work? Go try it or understand what your friends or people more senior are doing. And do you like the work? You can't like private equity if you don't like modeling in numbers. So, do you like the work and make sure you work with people you like? Because life is people. And if you love the people you work with, you'll be learning and growing and happy every day. And if you don't, it doesn't matter what you're doing. You're not going to be happy.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Pleasure reading is a sad casualty of my day job, but occasionally I do get to steal sometime. There's a terrific book that's so elegant and peaceful called a gentleman in Moscow. About a man held in a hotel for decades that is a really read I would recommend to other people who has given me by a colleague of mine. And I'm currently reading Outlive by Peter Atia, which is about living longer and living healthfully”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I've been blessed with so many. I'd feel bad naming some, but I mentioned a couple of PhD professors. There's people I've worked with. There's Chuck Klein with whom I founded American Securities, who's a dear, dear mentor, an important figure in my life. But I'm really blessed with a lot of people who've tried to help me.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I watch so little personal media of any form. What I do watch is typically with my kids and the witcher is a big fan favorite for them. Are whatever Star Wars spinoff at the moment.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, you know, being a good corporate citizen isn't just talking about it. You got to walk the talk. And so I think it's important to give of one's time and one's treasure to these institutions. And I'm proud to be able to do it.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's really one day a year there was a lecturer, a terrific man, professor when I was there. I became his research assistant and he asked me to come one day and talk about private equity. So I go to Stanford one day a year since 2006.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the studies you cite show that diversity is profitable. Diversity is profitable for investors. And the great thing about being a private company is there's a whole reduced liability structure for outside directors. So we often find, and I think this is broadly true for the private equity industry, there's a lot of people who are great people and very experienced and can add value to boards that are actively interested in enjoying the boards of private companies, maybe even more so than public companies.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“While we think about being a good steward and a good corporate citizen and investor, Going in period full stop. The boards, every one of our companies has an independent board. So the CEOs on the board typically, we're the controlling shareholders who are on the board, but we actually create a unique board for every company and try to model the best of diversity in all its forms and diverse members on those boards.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Showing up to know that they and their loved ones know we're in a safe environment. I mean, and this seems like how everyone should be acting, but we, and I hope they are, we certainly are too.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, some of it's related and some of it enables the other stuff. We grew out of the Rosenwald family. The Rosenwald family had a terrific philanthropic legacy and were terrific citizens and cared about communities. And we tried to do the same. So we have lots of programs that are philanthropic that are enabled by the success of our businesses. We give us a fixed percent of our annual profits to charities every year as an example. But there are other things that we're trying to do every day with our businesses. so-called ESG environmental social and governance factors, we think are not only good for the planet, but they enable EBITDA growth. And so being a good steward is about being efficient. You don't want to waste energy and you want to reduce it if you can. You certainly don't want your employees to get hurt on the job. So every monthly book from every one of our companies for years and years and years starts with safety. It's the most important thing. We want employees that are”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, all businesses are dealing in an active market, right? They have active competitors. Their customers are thinking how to do the best for themselves, suppliers likewise. And so the forces that will have made a company survive and perhaps thrive over the last 20 years are likely to be pretty consistent and the product of market-based forces. And so the really good companies should keep doing well irrespective of the environment. Sometimes it's easier, sometimes it's harder. But again, it's more the microeconomic forces that are going to matter for that company than a general macroeconomic something.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And in a relatively large number of situations, we're able to see the indicia of a successful equity investment, we hope, because of that stability and the ability to do due diligence, where other people in the venture world, for example, are just looking at how big is the runway, and if we build it, they will come. And God bless them. Many of those folks have done terrific investing for their investors, but that's not what we do. We're looking at what is and what can continue to be the case and how might we be able to help management make it better.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So we like stable businesses. And when we do our due diligence with an established business, industrial business, if you will, you can understand its manufacturing process and how that compares to its competitors. You can understand its suppliers and how it purchases raw materials and how that compares favorably or not to competitors. And you can understand the customers, and particularly if you're buying the number one market share player, you can really see the industry and know what customers are thinking. So we see stability in that.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's been very successful for us. And we have, to some extent, built our resources group and some of our internal functions to help those management teams and those companies be better that are industrial companies. And the thing that we like about it is because we're very focused on creating the best risk adjusted returns we can.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“There is, but you know, we need our industrial base, and interestingly in this country, it actually grows faster than the overall GDP by a point or two for the last 20 years. That's amazing. It's a vibrant source of transactions.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, you're absolutely right for the 30 year history of the firm, roughly 60% of our investments have been in so-called industrial and the rest have been consumer services and healthcare. With respect to industrials, I'm not sure why it is the case, but lots of people don't find it sexy.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“You show yourself to be an astute observer or keen understanding of how the world works. That's exactly what happens. The average we see, which let's say is down maybe a half a multiple point, maybe three quarters of a multiple point is this year compared to two years ago is only the ones that sold, which are going to be the better companies. So the multiple drop is a little more than shown in the numbers quality adjusted. You're exactly right.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“You can take companies public to exit, and you can sell to public companies, but the private buyer to private buyer is an active, active market. And it's roughly down 50%. So new investments. Down and realizations are down, but the ones that are happening are actually happening at prices close to the If not entirely as much as they were eighteen, twenty four months ago.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“We had a detailed conversation a few moments ago about interest rates and their impact, and you were talking about some companies. Declaring bankruptcy more often. And I think that trend continues. And in terms of volume, deal volume is about half of what it was two years ago.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“The third thing, just I mean, just say last thing while the institutions have backed up. New commitments in private equity, which actually seems to be thawing as we're speaking. Individuals, individual investors are dramatically underinvested in private equity versus institutions. And that is an even bigger pool of capital, if you will, on the sidelines or now trying to invest in private equity. And so that's another wave of flow. So most people expect private equity to keep growing.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So they're pretty real, although people can cast dispersions, but often that's the lag happening. You know, if at April 30th after this notional March 31, the market dropped 10%, you say, my private equity stuff's down 10%, well, the valuation you get, May 15th is as of March 31, it's not going to be shown down because it's not supposed to be.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's one inherent issue. And the second is since if we know what's trading in the public market, so you know that that was the trade yesterday. Whether someone paid too much or too little, you know that was the trade. And as we say for every buyer who thinks they're getting a deal, there's a seller who is happy with the price. So there's a market. The valuations being done by each private equity firm, you don't really have that market test except when it's sold. And so some people talk about is the value real. My personal belief in general, it's very real. The SEC comes and looks at it. The auditors bless it, and investors are sophisticated in general.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, they're private companies. You got a timing lag, if you will. So every quarter, so let's say on March 31st, the quarter ends, private equity firms takes time to get numbers from your companies. And so there's typically 45 days where you try to figure out what the value was on March 31st. And then you send those values to your investors. So if you're invested in private equity, March 31, by May 15th, you will get to know what the private equity firm valued those investments on. So that's a lag. So people talk about the lag.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“The way private equity gets valued and all private equity firms in the United States with more than $150 million of capital under management are registered with the SEC. And one of the requirements is that all private equity firms value their holdings every quarter and that at least annually those evaluations are typically subjected to audit as part of the audit process. The auditors look at those valuations.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's really both those factors they're called the numerator and the denominator effect. That has caused some institutions to slow down their commitments to private equity to get those back in balance because as you know, the stock market was down, not this year, but last year, and private equity values continue to be up. So that's one set of forces. The second thing you raised is how is private equity valued? The stock market gets valued every day, every stock you can see when it trades, every tick.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So two big forces that affect all of these institutions is one, what's the value of those private equity investments? So if you targeted, if you had a dollar to invest and you targeted 10% in private equity and those investment doubled, now you have 20 cents in private equity instead of 10 on your dollar. So you're quote overallocated That's really good in a sense because your private equity portfolios are up, but it's still a problem because you're overallocated so you stop making new commitments. The same thing happens in a different way with your dollar. If that dollar is based on the value of all of your holdings in the stock market, say, drops by 10%, now you only got 90 cents. If your private equity is at 10 cents, you're overallocated. And if it's at 20, you got a real problem.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So private equity, as you were talking about before, has been growing now for 35 years. So as the ecosystem keeps growing there are more companies owned by private equity, there are more good things, and there are sometimes more bad things. So it's just growing. So I think the trend to more people investing in private equity has grown dramatically, and it's continuing to grow. And the institutional investors often are thinking if you're a big state pension fund, I want 10%, 20%. If you're some college endowments, 40% in private equity. But whatever is that percentage, they're targeting that. And they've allocated their assets to have that percentage invested in private equity.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So we may try to provide an investment to a company like that where when it comes out of bankruptcy or its debt problem, it's a great company with the right capital structure. But most of our things are not that.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“There are many private equity firms that focus on so-called bankruptcy, distressed, and whatnot, and private credit providers. We are trying to avoid those and trying to buy good business on the journey from good to great or great to greater. Once in a while, we will look at what I'll call good company bad balance sheet. The fundamental company is a good company and has been, it has all the characters who like market leadership, margins, stability, some tailwinds, and a great management team, but it just had too much debt”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“It's all facts and circumstances. Certainly you're absolutely right that bankruptcies are up and most people think they're going to keep rising and I think they're right. And that's nothing more than what we've just talked about. The cash needs of the average business for more money in inventory, for higher interest rates, and in many businesses constrain growth. And at some point, that can reach a breaking point. And so those forces will have bankruptcies rise just as lower interest rates will have that abate in the natural cycle of business.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, there's so many forces going on, Barry. I mean, now, and just think about the big impact of the five or six largest tech companies as a percent of The growth in stock markets and the average company, particularly smaller public companies, are down, not up, even though the stock market's up. So at any one time, I like to say no one should ever invest in us because they think we're good macroeconomists. Macroeconomists are often wrong, especially at inflection points when we need them to be right That particular company at a moment in time with its forces and its management team, and that's what we spend all of our time trying to analyze. We try to be macro aware, but really micro focused.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Because rates are higher. So, those two things constrain value where earnings hasn't, even if earnings grown and it may make it hard to get all of the money out in a sale today if earnings are flat or only up a little bit.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And it could be four and a half if the company is perceived to have a little bit of a blemish. And the adjustments that might move it higher are harder for lenders to support. So one thing that constrains value is you fundamentally All things being equal, if you bought a company with six times leverage three or four years ago and now a private equity firm is trying to sell it, it probably cannot sell it with that much leverage. The buyer is going to be having five times, and that means more equity. And if you have the same equity, if you have a bigger equity check, that will be in a lower rate of turn on the equity. That can impact price. And as we've talked a lot about, the higher interest rate is also a big impact because instead of paying In the hundred dollars of debt at 650, let's say 650 of interest a year, now it's $1050.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's two issues that are affecting evaluations. One is the amount, just what's called the quantum, the amount of debt you can borrow expressed as a multiple of your free cash flow or your EBITDA. Until 18 months ago, a reasonably solid stable business could borrow between $6,000 and $6.5 times. Gets trailing EBITDA. And sometimes Pro form projected this year will be a little higher. You could borrow that same number off what you hope to achieve in the year you're in. Now that six and a half is more like five for a good company.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, it was attractive 18 months ago because it was fixed rate if you were conservative, you had no risk. And now that same company, if it came to market, would be issuing those bonds for at least 12%.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically on the private side, 18 months ago, you wouldn't have borrowed, but few people borrowed first lien in the private markets. They would sometimes issue bonds. And so in one company, we know well, that company managed to issue 6% bonds. So that was fixed rate 6%”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And so you really have been boring at six and a quarter for the last 18 months as rates have come up when your hedge runs out. It's going to be 10. If rates stay the same as they are today.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Public or private barry, the companies are always refinancing. You have a first issue is are you refinancing with floating rate debt or fixed rate debt? So, if I had a five year senior debt credit facility, let's say LIBOR then SoftRowNow plus 450, whether I refinanced it now or then, that's $5.5, sorry, six and a quarter percent debt that's now 10.4%. But if I issued bonds or fixed-rate debt, Then I would be insulated from the rate increase. So it's firstly, did you issue fixed rate debt or floating? And if it was floating, some people still bought hedges. The hedge market's pretty efficient for two, three years. hard to hedge farther than that. And so when those hedges run out, even if you were conservative”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you were your supply chains might have come from Asia and it takes longer because they're not quite as efficient, harder to get containers, so you actually need more units, this can add up as well. So between interest and working capital, even companies that are flat or growing can have cash flow problems if they didn't plan to have enough liquidity.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's the 5% more or 500 basis points you were talking about. So instead of paying $6.25, you're now paying $10.25 in interest. And it's either a lot or a little depending on whether you have the money or not. If one didn't capitalize the capital structure, Planning to have a cushion that was that big, that higher interest rate can be a barrier to continuing to pay interest or amortize pay back that debt over time. There are other problems like inflation and supply chain issues, both of which cause many companies, even healthy growing companies, to need more cash for working capital. If you were selling something where the raw material cost used to be a dollar and because of inflation after a couple years, it's now $1.25, that's 25% more money in working capital for the same number of units.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Two and a half percent software has replaced LIBO And then basically it was LIBOR, Safra at about 450. Depends on the perceived credit quality of the company and syndication markets at that time. So it was basically the initial base rate was almost zero, zero to 50 basis points was softer. Plus that 450, let's say, and fees amortized in, and you get to, let's say, six and a quarter.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, 18 months ago, just to put this in perspective, 18 months ago, private equity firms generally could borrow senior debt for their companies at around 6, 6 and a quarter percent all in. So if you borrowed $100 of debt, you paid $6.25, let's say, of interest every year on that debt.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I think absolutely, Barry. I think almost everybody in private equity generally, when they make their first investment, they are looking at what might be able to acquire in addition. investment bankers always market this now. In their materials when you're looking to company, this company can grow by buying all these companies, this is real or imagined, but it gets marketed. And really, it's something I think everyone in the private equity industry is pretty much thinking about every time they make an initial investment. Is there growth through acquisition as well as organic?”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So the add ons are all about building the existing business or the platform initial investment, to use the phrase you were using. And so there, it's not about a capital, it's not about getting liquidity for anyone who's an existing investor. Sometimes there will be a smaller competitor that the company wants to sell to us. Sometimes there will be... Like size business in an adjacent industry where there's synergies that we can save money on purchasing, let's say, by having a bigger scale platform. It really depends on the company.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Many of our companies have international operations, some are truly global companies, some are not, but the key thing for us is that they're U.S. headquartered because this is where we know people, we know the laws, we know the language, we should have a competitive advantage, and we can be close and still try to have a family life if we're traveling all over the world. There should be someone who has our advantages. And I like to say Beijing, Berlin, Buenos Aires, and Bombay that should be not us, whereas we have those advantages here as American securities.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, it's a lot or a little depending on how big your screen is, but it depends on the year, but we will typically see. $350 to $450 companies that look like they might be suitable. This number is a rough guess, but we probably do very detailed work sometimes with outside consulting firms and other advisors on maybe 40 of those. And we will make final contract offers on probably around 10. That's a rough guess, and it changes every year. And we're only buying, I should say, US headquartered businesses, that's all we've ever aspired to do. Nothing overseas.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“We want the CEO to want to be our partner. I mean, we obviously know a lot of managers. We really get excited if the CEO is going to be our partner going forward.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And we're looking for that company to exist, as you said, in an industry that is growing at GDP or better. Now we use terms like, is there a tailwind?”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“We work really hard to get better tactics. The fundamental investment philosophy hasn't changed. We're looking for that market share leader which has a sustainable competitive advantage we hope that we can invest behind and see stability so that there won't be a loss of capital.”
2023-12-01 · Masters in Business · Michael Fisch on Private Equity Funds · IDENTIFIED FROM THE TRANSCRIPT · source