October 21, 2016
Interviewed by: Privcap
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Steve Pagliuca: What’s Changed at Bain?

The co-chair of Bain Capital discusses the firm’s founding principles and its growth to $75B in assets under management, challenges in the hedge fund asset class, and the firm’s efforts to hire a more diversified investment team.

The co-chair of Bain Capital discusses the firm’s founding principles and its growth to $75B in assets under management, challenges in the hedge fund asset class, and the firm’s efforts to hire a more diversified investment team.

What’s the Same at Bain, And What’s Changed?
With Steve Pagliuca of Bain Capital

Michael Ricciardi, Mercury Capital Advisors: Hi, we’re joined today by Steve Pagliuca, Co-Chairman of Bain Capital. Steve, welcome.

Steve Pagliuca, Bain Capital: It’s great to be here today. Pleasure.

Ricciardi: I had the good fortune of knowing Steve back in business school, ’80 to ’82, and we’re here today to chat with Steve about all the successes that Bain has had, and where he sees Bain going, and where he sees the economy going in general. I was wondering if you could give us some sense as to the ethos at Bain, which transpired over the course of the last 34 odd years, where you guys have taken Bain from what had been an offshoot from a consulting firm to now a major capital provider to the industries.

Pagliuca: When I think back, it’s been an incredible history. I’m very fortunate to join Bain & Company. And back in the day, I went to do the consulting, and lo and behold, about two or three years later they started Bain Capital with Mitt Romney, and he then expanded from a small venture firm doing things like Staples, into a large firm.

First, they were going to invest partners’ and investors’ money, and that was very important to be a principal investor in their own funds. Second was to use these skills – back in the day that’s when the growth-share matrix [was embedded ?], the experience curve, BCG, Bain, McKinsey, very hot concepts for business to use these skills, and apply them to principal investing to build businesses.

And then third, they wanted to form kind of a global network, to build the business and use these skills, and even maybe in other investment products, which would come later.

Ricciardi: So would you suggest, then, that the discipline that comes from the consulting practice has been a major contributor, differentiator, for Bain versus all the other private equity shops?

Pagliuca: I would. I think certainly for many years we were the only people that mainly hired people with consulting skills, and had a philosophy to be…come in as invited guests, you know, come in and work with the companies and work with the CEOs. And our pitch to the CEOs were that we could come in and help them do acquisitions, we could help them look at new products, we could help them look at cost reduction, investments, and we would bring a whole team in to work side by side aligned with those CEOs.

We have our investors, ourselves and the management teams all investing in the same company, there’s no politics, you’re pulling the same direction, you have the same goal. It’s really exciting. That was the pitch from day one, and that’s really remained today.

Ricciardi: So somehow Bain’s been able to do that on a relatively consistent basis over the last 30 years.

Pagliuca: Yes, we have, and our most recent fund, our most recent set of funds, has proven it again, that we’re off to a great start on our last three funds, and showing good returns for investors, and we’re very happy about that.

Ricciardi: And what does Bain currently have under management, AUM?

Pagliuca: Around 75 billion.

Ricciardi: 75.

Pagliuca: And to be clear, we’ve extended the business outside of private equity and used those same principles to create a large credit business, so Bain Capital Credit; a market investing business, Bain Capital Public Equity; a venture business, Bain Capital Venture Capital. So we’ve really used those same concepts, all homegrown, and extended that to picking good companies and investing in companies on the public markets, and picking credits, and it’s been successful globally, and that’s the 75 billion.

Ricciardi: So the hedge fund industry in general has gotten hammered pretty hard this year. Do you guys have any thoughts as to where that may be going?

Pagliuca: At least at Bain Capital, we’re sticking with the basics of trying to find fundamental value, and I think we’re in a bad cycle right now but hopefully that seems to be turning around a little bit.

Ricciardi: Private equity in general has been considered a relatively pedigreed industry. And so, how might one, especially somebody that sits in your seat, contemplate increasing the diversity in private equity?

Pagliuca: Private equity really started out as a cottage industry with a lot of small companies back in the seventies and the eighties, and we’ve seen dramatic growth into large global institutions today. And as that growth has happened, I think the institutions have recognized, and certainly Bain Capital has recognized, that we need to have diversity in the industry; and there are all sorts of efforts going on to increase that diversity. We are looking for the best people, but also believe that a diverse set of people will get you the best results for your investors.

So, for example, we started a women’s hiring program, we have women’s day at Harvard Business School and other schools to talk about careers for Bain Capital, and to try to convince women to jump into the industry and tell them what’s really happening and why it’s such a great career. And we’ve been very successful at that and dramatically increased the number of women in private equity. All the private equity firms have gotten together and recognized that’s an issue, and are trying to get minorities and women and find the pipeline to get them to populate the private equity industry, as it’s now grown and large, and we believe that diversity is absolutely key.

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