YouSaid · the spoken record

Michael Rees

lines on the record: 72
first: 2022-10-31
most recent: 2022-10-31
sittings or episodes: 1
sources: podcast

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“I'm going to change the question a little bit, if you don't mind. The life lesson I haven't yet learned is when to not talk. I think the life lesson I haven't learned is when to know when to be quiet. So I'm still working on it. I like to have a point of view and probably there's all those bumper stickers and all of the adages from your parents about be a good listener first. I'm still working on that.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Team complexion here in the GP Stakes business. There isn't a heavy leaning towards the Ivy League. We have a couple really smart people. Don't get me wrong that had some tremendous academic backgrounds. But we also have a lot of people that have worked their way up from schools where a number of organizations don't go to recruit. They found their way here the hard way and have done a really great job here at the firm.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, coming from Pittsburgh in a family that really we prided ourselves on a stealer's work ethic in everything we did. And my parents were extremely hardworking. We got up Saturday morning. We cut the grass. We trimmed the hedges. We painted the house. You know, it was the kind of approach to life that, you know, nothing was handed to you. And so here we are fortunate to be enjoying relative degree of success here with this business. It's trying to instill in myself and the team that we can't let it go to our heads. We have to be humble. We're still minority partners, so we're always looking up to the owners, the founders, the controllers. They're the show. We're the sideshow. And I think to keep humble, to stay humble and be a really attractive minority passive partner is something that takes a little bit of blue-collar roots. And it's no surprise that when you look across the”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“A blind spot is one that changes throughout your career depending on your level. At an early age or early part of my career, I thought everything came out of Excel. There's nothing to a deal that couldn't fit into a cell in Microsoft Excel. And so that was a huge blind spot. But I feel like to at least to succeed and get to the next level of your career, you have to sort of put some of those blind spots away. I think right now, you know, in this position running dial, the blind spot is figuring out what the next part of the market looks like, what the next cycle looks like, and how we want to position ourselves. There were really difficult unknowns when the market was ripping, and there are certainly unknowns now that we face headwinds. I think adjusting and adapting to what lies ahead is the job of a leader. I take that responsibility humbly.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“The banker and me gravitates towards every investment. That's the problem. My team, we've now added some people that are a little more negative. But when you put a team of bankers in a room, man, everything seems like a deal that can be done. It can be structured. We can find a way. So I'm glad our team has evolved now to have a few more naysayers where the few of us that have banking in our background would still be trying to get every single deal across the goal line.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“But also be there as a sound mentor and guiding force throughout. I think that I've learned a tremendous amount from Tony and I'm eternally grateful for my time with him.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think the two people that I credit with just being amazing professionals, one, Aaron Callan, she was a banker that I worked with at Lehman Brothers. And the best combination of intellect and relationship capabilities of any professional I've ever seen. So it taught me that having that two-pronged approach, knowing your stuff is important, but the relationship angle is equally as important. And I thought Aaron, it was truly the pinnacle of those two areas. And then Tony Toutron at Newberger Berman absolutely fantastic professional. He is laser focused on every single investment that goes through that place and just watching him manage a team, manage a portfolio, give his team the type of quote leash that they need to develop their skills.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh man, I wish I had more hobbies, but my hobbies right now are work and watching the kids play sports. I love sports. I love, certainly I love my family. And so when I have any free time, I spend it on some sort of sideline. I used to coach. I don't know whether my time availability or my skill set was outstripped, but I'm now an avid spectator watching the kids play.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, even if you just look at the top 250 firms, the organic growth in those firms is outpacing the ability of us and our two peers to raise capital. So we're becoming a smaller part of the industry every day, which is amazing because people look at it on a name basis and say, oh, I love the top 100 firms in the industry. I'm picking a number 50 have done one of these deals and say, well, we're approaching saturation, but that doesn't recognize is the fact that you can do another deal and a third deal with these very same organizations. And you have a lot of firms that may have been below that threshold that jump up above a certain size level over time. So we keep seeing larger and larger opportunities every single day.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is at fun two or three and really think they can outperform by identifying this business that is earlier in their growth phase. But from a dollar perspective, there are many more investors that are very happy partnering with the larger firms. They may not get the best vintage in that firm's life. Turns out in the last few years they have, which has been remarkable that while there was this prevailing wisdom that as firms got bigger, the returns would suffer the last several years was antithetical to that. That will have to funnel its way through the academic literature and see what shakes out there. But there has been a benefit to scale of late that doesn't necessarily fit with history. All that being said, I think different investors want to be at different parts of the growth curve focusing on smaller, medium sized, and larger firms. And I just think for us as a GP partner, we want to be with.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, if I had more downtime, I would really dig into the literature that's out there, particularly certain parts of the academic community, about the underperformance of firms as they get larger. It's one of those almost impossible topics to study because of survivorship bias. There aren't a lot of firms that did poorly when they were small that somehow got to be large. So you have a whole part of your data set that just doesn't exist. But that being said, I mean, I think certainly firms typically had better multiple of money performance on their fund two and their fund three when it was $500 million in a billion than when you're managing 20 billion euros. So I think it's just a different part of the market you're playing in and a different objective. What also happens is your investor mix shifts. So there still are a lot of investors that want to find the new.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“What about the well-known phrase size is the enemy performance and that GPs will be less motivated after they make money? I'm curious what you've seen in the performance of all the funds you've bought stakes in after they've done a transaction with you.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Few others that are trying, but there have been a lot who have tried and haven't succeeded. And so it's far from saturated. It's probably the one area of private markets where there's the biggest opportunity compared to the fewest number of competitors. Perhaps, like I said, in any space in alternatives.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, it's always about the duration. If we would have just said this is a 10-year fund, our lives would have been so much easier. I'm glad we didn't because here we sit fund one being about 10 years old and we would have this unnatural position where we would have to quote wrap it up. So we didn't do that. We stuck to our knitting, but it's made fundraising harder. There are still, to this day, many organizations, many investors that do not have an ability to invest in a quote permanent capital vehicle. And so while it was tempting to say, okay, fine, it's a 10-year fund, we've held out, and that's work to our advantage. Number one, because we raised the capital we wanted to, number two, it kept a lot of people out. This industry, and you hear a funny quote from time to time that's becoming a saturated industry, they're, like I said, in the sandboxes, ourselves and two other players.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Small allocation, and I want to come to the other side of the table where I'm receiving fees. I'm receiving carry and be aligned with the very firms that I'm giving money to every year. So it's been also gratifying to see that transition happen over time.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was hard at the beginning. They had no way of thinking about it. There was no track record, and they had to come to some conclusion, why would I not just keep doing what I'm doing, investing in funds? What is this GP stakes thing? I think we demonstrated sometimes through a lot of analysis and sometimes just through our historical performance that owning at the GP can be a very attractive thing. And it's hard to model a portfolio of LP interest investing in funds that will outperform a portfolio of investing in stakes. You don't have to look too far at all the wealth that's been created by the owners of these firms to realize this is a good side of the table to sit on. And a lot of investors have recognized that. No one said, I'm going to make 100% of my alternative allocation into GP Stakes, but a number of them have said, particularly once they have a mature portfolio, you know what? I'm going to take a”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“But we don't. That, I think, is what's critical. And as you think about what's unique and what is really kept growth in this segment to a modest level, it's the fact that we have to raise permanent capital vehicles. There aren't many other vehicles out there across the industry that are like this. We look like a private equity fund on the way in. We get commitments from investors. We call capital to do deals. But we never plan on selling a partnership or ending a partnership. And we really don't ever have a way for investors to elect to redeem. There's not a redemption term. So many of our investors, the insurance companies, the pensions, the sovereigns, they think about this as a very long-dated cash flow stream. A lot of them think about it that way. Now, I then swallow hard.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Too good. Well, now they're looking great. So there is always the proverbial, the only free lunch out there is diversification. There's a benefit to having a little bit of everything. And if we know we're partnering with the better firms or even the best firms in their relevant segment, then we're comfortable that they'll see their way through different cycles and what was energy at the bottom of the periodic table a few years ago is flipped to the top, just like growth was at the top back then and is now getting the ire of certain parts of the market. So it's hard to think of it as a portfolio construction exercise. It's more a focus on partnering with the best.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We really don't lead with portfolio construction. We don't say that this fund is going to have two buyout firms and two real estate, et cetera, because that sort of forces you into an unnatural position where you have to go out and find somebody at a given time, even if they're not ready or if they're not as high quality as you would want. So we really focus on those longstanding conversations with the best firms that we think are going to be around for a long time. And if it shades a fund of ours towards one sector or another, then we're okay with it. Of course we put limits on it. We don't want to end up with 25 VC firms in a fund, but it doesn't necessarily ever happen that way. It's been a nice blend. And we had a few people and clients that would start our quarterly reviews with tell me about those energy firms you invested in. Those aren't looking too much.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Over time, and I don't feel the sense of competition. Now, the competitive effort that we have to put into the business is that we need to keep these relationships fresh. We need to be out there. We can't rest on our laurels. So that's where the competition comes in.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I see this humbly, and if Andy Grove were sitting next to us, he'd slap me. I don't feel day-to-day competition. We sort of do what we do. We build these long-term relationships. And, you know, while a GP, a sponsor will talk to others, it's kind of like dating. It's not like you're standing there ready to propose to one person and you might change your mind a half hour later. These are longstanding relationships. We come with a tremendous amount of capital that we can meet all their needs, not just on day one, a number of our partners have come back to us a couple years after and said, can we do a second deal or even a third deal? So we want to be that type of long-term spouse that isn't subject to a one-week auction where we may come in second or third. These are really relationships that for the most part we've built.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“You mentioned having two competitors on the other side of your sandbox. You also have IPOs as an option for a lot of these firms. You've had other aggregators of asset managers in the private fund space. How does competition, as you mentioned, you've done 19 of the 22 large deals. So how do you sense competition, not just from another capital provider, but also the public markets in the eyes of some of these GPs?”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“I don't really see an impact on the founders. And in a lot of ways, the money goes into the business or into the capital accounts of a number of people, a number of professionals at the firm, and isn't sort of in the bank account. It's going into the ground, not coming out of the firm. Another reason the cash out descriptor doesn't really fit. So in most cases, the bank account movement for most of these professionals doesn't happen day one. They believe that over time it will be value creating for them. They'll build a bigger franchise, they'll have additional products, and they'll be able to put more of their own money in the ground next to investors. So the 10-year bank account impact might be meaningful, but the day one is typically underwhelming.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Would see for your average firm in the industry. So I think the biggest thing we see after is a little more focus on being opportunistic and building a business that has more than one leg to the stool. And I think that's good for our investors and been a reasonable hallmark of what we do.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're often asked a funny question, are you responsible for the growth? Are you pushing these firms? And if you knew most of the founders that we've done deals with, you would clearly see that we can't push anybody. That's not a group that's easily pushed. But there is a typical growth curve that comes really at either the time of our relationship or shortly thereafter because the whole reason for providing this growth capital is because this firm has a view that they're going to do something with it. So whether it's, you know, launch if they're a large cap, buyout firm, launch a mid-cap fund, which has been a wildly successful strategy across the industry, perhaps evolving into credit, or even just utilizing some capital to make the team more stable and perhaps make the team a little more forward leaning. All of those things typically result in a little more of a growth inflection point than you.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“So once you conduct a deal, as you've done in 19 large ones and a bunch of others, there's a premise going in that this is not, let's use the evil words cash out. There's a lot more growth capital. What have you seen in the behavior of the founders across the deals that you've done from the day that that deal closes onwards?”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we have a chart that shows the average multiple of the public companies, the Blackstones, Apollos, KKRs. And it's like a mountain peak. It goes up, it jags around, it goes sideways, it comes down, and all the while the valuations that we're paying for private markets firms are very consistent.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of building these long relationships, being there for an organization at the time that makes most sense for them, it's not a trade. They're not trying to time the market. We're not trying to time the market. And I think it adds a really high degree of consistency to the type of valuation parameters we see. And there's not a lot different from our first deal with Providence and Vista 2013 and 15 to our most recent deal this summer. So we benefit from a real divergence in terms of the amount of available capital, which there isn't a lot, and a number of really good partners that want a sizable amount of capital. So we can pretty much keep a consistent approach to valuation, irrespective of what's going on in the market.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we benefit from being in a really small sandbox, which has two peers that we see most often. And we like to think we're on one side of the sandbox and they're on the other side. And so in our world where we've done, I want to say 19 of the 22 deals above $600 million of check size. So we have a high 80s market share. We really don't see pricing dynamics that move around a lot when things were going crazy and there was unbelievable excitement in late 2020 and 2021. Our valuations were pretty consistent with what they had been for the prior five years as the things start to shift here in the middle of 2022. We're not really seeing much change. And so I think it all goes back to our sourcing mentality.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not something we like to shout from the rooftops, and I guess here I am shouting it from the rooftops, but these businesses can be extremely profitable. I think the old adage that the management fees keep the lights on, I think that's a good motto. I'm not sure how accurate it is. I think what we've seen is for the bigger firms, there is an ability to generate really good profitability, which generates longevity and stickiness because you can incentivize a broader team, bring more individuals into the ownership, broaden out the carry base. And, you know, you see that from the very top on down, the sort of blackstones and KKRs of the world have realized that scale has a huge benefit. And I think that doesn't just extend to the 10 to 12 public companies. It goes across the next hundred or two hundred as well. There's a real benefit and advantage to the resources that you have as an organization at scale.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“You have these conversations regularly with these partners at some point in time, a conversation might lead to a potential deal. When you then are doing due diligence and get under the covers of these businesses and the financials, what's been most surprising to you”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, there's talent. Of course, we help identify great candidates for certain C-suite roles. We help our partners with organizational design come November, December. We're always helping with comp benchmarking. So talent is a big part of it as well. And then operations tech infrastructure, just good old fashioned blocking and tackling that your COO and your CTO at a large firm would love to lean on. There's so much to running one of these large institutions these days. If any of them want to go out and put in a new system X, it's probably likely that our team has interviewed everybody in the space that does that and can get you to third base pretty quickly without wasting too much time.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We break it down across about six or seven areas. Really fundraising is still the $64,000 question for every organization. You could probably count on one hand the types of firms that can snap their fingers and hit the”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“They want your money. Just shut up, and that's it. And so it's gratifying now to hear our partners tell each other, did you ever imagine that you'd get this type of a relationship from the dial team?”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“They often also come to these deals more seeking the capital than the advice. So I think it's one of those things where if you ask them at T0, what are your motivations for this relationship? I think it's 99% capital, one percent advice. And I think when you ask them a year, two, three into it, I think they say they would have had that skew wrong. They would in hindsight, they're getting really good advice. It may not be the type of advice that will be a game changer for an organization and really change the arc of a firm, but across a number of different areas and a number of different levels within the organization, our teams are interacting and adding really positive momentum and best in class advice to the people at our partner organization. So we've gotten really good feedback. It was a whiteboard idea in 2009. Many people said, hey,”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's been a long arc, but at this point, we have a number of professionals, 40 to 50 and even growing professionals on our business services team, that are making these relationships strategic. Now, you asked, what's it like sitting down and talking to these founders about it? Most are pretty accepting of the advice that we give. We do have an amazing vantage point, and we've talked to just about every large firm and successful firm out there. So they do think that and believe that we have credibility in adding strategic value. Now,”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“So we came from that DNA that we wanted to do no harm and stay as far away from these firms as possible. Remember, that's where it started 20 years ago. So tiptoeing into the strategic partner definition was not one that was overnight and it certainly wasn't easy. But we actually got more of a pull from our alternative partners saying, hey, you guys see a lot. You sit across a number of these firms. Can you help us in certain areas? So as we really launch dial, we decided we were going to have dedicated professionals that we come in every day and only think about making the relationship with our partners as strategic as possible. So they don't work day to day on the new investments. They get together week in and week out with our partners and work on the things that make those institutions stable and add longevity. So it's been an evolution.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'd love to get under the covers a little bit of what these conversations of offering help and guidance are like with these people you're interacting with. What do you see that you're helping them see?”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think we've seen some of the larger hedge fund firms turn into really stable organizations. A lot of them, though, have decided that there is real value in having locked up capital. So they're moving more towards the private market side sort of day in and day out. There aren't many of what we would have called scaled liquid hedge funds in the year 2002 that exist today in a similar fashion. They're much more institutional. They make longer term bets if they are at this scale and a number of them have migrated their capital to be more long dated. We've always talked about the blurring of alternatives and hard to really describe what is a hedge fund anymore. I think that will continue and I think some of the bigger platforms will want to do more with their clients and do it across the liquidity spectrum.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, these private market firms, they have long duration capital. It's locked up. They're never going to shut the lights off overnight the way hedge funds. How are you thinking today about some of the larger hedge fund firms?”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We still believe that the growth dynamics are more attractive at the larger end of the market, but we certainly think the stability is much stronger and the longevity is going to be much stronger for the larger firms. One of our newest and strongest relationships with CVC, I mean, that machine's going to be around for a long time. We're proud to be partners. And that's the kind of firm that you would have never had the opportunity, particularly on the hedge fund side, to say there's real enterprise value there. You look at a firm like CVC just as one example and you really see something that's going to last.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, the dial business has focused in private markets on the largest. We had a hypothesis and a view in twenty fifteen that the big we're going to get bigger and the strong we're going to get stronger. And it looks really smart in the rear view mirror, at least through the last seven years. I do think there is good consolidation at the top. And I do think the larger firms are going to take share over the bottom of the pyramid. More investors in this space are larger government institutions and sovereigns, et cetera. And they really prefer the type of service that you get from the bigger firms in the industry. And so as incremental flows come from those big guys, we really see it concentrating on the top 250. There aren't many peers or even competitors for what we do, but they typically focus on firms that are not smaller, maybe favoring growth, et cetera.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Three years or seven, eight years. And in a number of cases now, we've been doing it for long enough, we are actually consummating deals that started with coffee 10 years ago. So it's great to see that avoid the funnel mentality. Don't throw out any conversation and just build really long-term relationships. It's good to see that coming home to roost with really a fantastic opportunity set that lies ahead of us.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We never, ever let go of an opportunity because firms change and evolve over time and people move around the industry. So we're constantly talking to the top 250 firms in the alternative space, talking to them about their business, understanding their goals and objectives, and there are some conversations that we have that we know at the beginning of the hour. This isn't going to be a deal that we're going to do anytime soon. But it doesn't mean it falls through the bottom of our funnel never to be found again. So we continuously travel a world. Luckily, most firms are in the top five or six cities, which we can all think of, and we just really build long-term relationships talking about what it means to run a firm, what it means to run an enterprise, and we offer help, we offer guidance. We tell them that a deal might not be imminent. It might not be for two years.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, we've seen probably two or three thousand flip books from private markets firms, and I don't think there's one that we've seen that doesn't have the old sourcing funnel in it. And that you see 5,000 deals we saw and two hundred we did and whatever that funnel looks like. We're the only firm that, at least to my knowledge, that doesn't have a funnel.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't have to really combat that original set of objections. I guess even today you get the cash out word thrown around and there's a question around what an organization is going to use the capital for. If we write an $800 million check, investors will want to know where is this going and how does it benefit me or even how does it not hurt me? And so when we and our partners really lay out the use of proceeds and say, look, of that 800, 400 of it's going to go into the next fund right alongside you, Mr. and Mrs. Investor. 200 of it's going to go here and the other 200 is going to go there. And they see that this is good. This is making a more stable organization. This is providing longevity. I think the pushback quickly subsides. But that's been a gratifying arc that over a lot of deals and a lot of consistent messaging, most of the stigma.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I don't want to dodge the question, but when you look back at what the pushback entailed 20 years ago, most likely led by the Ivies who said, I want my alternative managers to be the following. I want them to be 100% owned. I want them to stay small. I want them to be single product, et cetera, et cetera. And so that was the pushback then. Why are you taking capital in? Are you going to grow? Are you going to add new products, et cetera, et cetera? So clearly, over time, that set of objections has gone away because just about every investor out there works with Blackstone. They work with large firms that are not 100% employee owned. They're not single product. They're not small. So the ethos of what type of GP you want to partner with has changed over twenty years. And so we...”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“We can do a pretty good job of describing why a firm has much more alignment with an investor after one of these deals than before, just due to the larger GP commitment that they can afford with this growth capital.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Got larger, and as the funds came faster, there became a strategic need for GP capital. And that's really the void that we stepped into and filled as these firms did get bigger. They were using up a lot of capital. And that's been the major use case for almost all the capital that's gone in the ground over the last decade. There are secondary use cases. Of course, there are times when we're buying out a retired partner or a set of retired partners. One of our larger GP relationships made a large acquisition of a secondary platform. So you do have other use cases, but the vast majority is to fuel this bane initiated alignment that has turned into an arms race of having a lot of skin in the game and having a larger GP commitment, which I ultimately think is really good for investors and why if there is still any negative”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I always tell the story about bane capital. I give them credit in just shortly after the financial crisis, there were questions around skin in the game from the perspective of investors and investors were saying your performance of the industry hasn't been that good through this cycle. And so how do I know you're in it? How do you, as these firms get bigger and bigger, how do I know you're focused on my money and you're not focused on management fees? And so the response from Boston up at Bain was, we're going to put a billion dollars into this next fund. And that really reverberated through the industry. And there probably hasn't been since that time an investor meeting where a question wasn't asked, well, how much skin are you going to have in the game? What is your GP commitment? And so as we embarked on this really nice growth trend from 2010 through today as funds got bigger, as the GP committee.”
2022-10-31 · Capital Allocators · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · IDENTIFIED FROM THE TRANSCRIPT · source