Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: How’s it going out there? It’s Thursday, June 9th. I’m Frank Curzio, host of Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. So guys, I have a fantastic interview set up for today. It’s with Sanchin Khajuria ,who’s worked almost his entire career in private equity. It’s going to be a partner in Apollo, limited partner in Carlisle group, limited partner at Blackstone, and now runs his own shop. Being the founder and chief investment officer of Achilles Management, and hardcore interview here, really going to dig in private equity. A mystery to a lot of people, maybe that they know it, a little inside scoop here. We’re going to break down a lot of things. Feed to the fire a little bit, it’s a fun interview, including what metrics to look at before you buy a publicly traded PE firm like Blackstone, Apollo, KKR, which anyone could do through their brokerage firm. The methodology behind PE firms, when it comes to find the right company to take over or invest in, which I love to learn about, what’s the strategy where these guys almost always, always win.

Frank Curzio: I want to know that. I want to learn about that as well as a strategy form of running these companies and building them to become even bigger. So, once they’re taken over, what’s a strategy. When they bring them private, then they build up these companies, what do they do that’s better to everyone else that when they come out and whether this is IPO, they had an equity event, these guys are usually much, much bigger compared to when they take them over. And talk about the leverage part of the industry, which is a big part of PE, we all know that. 2007, we saw… Most of the time these guys can leverage, and it’s very easy. Because the debt was very cheap for a long, long time, right? After the credit crisis up until this year, basically now, rates are rising, and you looked at 2007, where private equity was on fire before that.

Frank Curzio: But KKR took over First Data, just familiar with that, was a Long Island-based company. And they ran into a lot of trouble, pre-credit crisis. It took on more debt than revenue the companies generated for many, many, many years, but eventually got that one right. And also it was, I believe Blackstone, who took over Hilton, had trouble. And they also took over that deal 2007. Now, why am I saying that? Because it relates to right now all the deals that happen over the past year or so, and the leverage taking place. A lot of private companies now evaluations have come down. How is public equity handling the downturn. Higher rates, less leverage, even though they have more cash, their balance sheets than ever and everyone’s still dying to get into this industry again, it’s much different today than it was during in a credit crisis.

Frank Curzio: But these are some of the things that we address, as it’s much hard to get credit, and credit’s much more expensive than it was just a year ago. Were also going to talk about his new book, which is scheduled to be released next week. And that is called Two and Twenty: How the Masters of Private Equity Always Win. I love that title, “Always Win.” I got to pre copy the book. I’m reading it now. And it’s awesome. So guys, really, really great interview coming out, full court press and the private equity industry, so get ready to be educated. And here’s that interview right now. Sanchin Khajuria, thanks so much for joining us on Wall Street Unplugged.

Sanchin Khajuria: Thank you so much for having me. How are you?

Frank Curzio: Good. I’m doing good. Excited about this interview. I love talking to investment legends. People have been around for 25 30 years. I’ve been doing this for over 25 years. My late dad did it for 30 years in financial investment, financial newsletters and money management. So, for me, I love interviews like this just to go back, to see where the world was, where it is today. Your expertise obviously is in private equity and let’s start there and bring the audience in, okay? People say private equity. How is that different venture funds, hedge funds. And again, you know that I know that, but I want to bring the audience in here because we’re really going to get into a few things, a little deeper here with private equity and the opportunities you have in private equity but let’s start there.

Sanchin Khajuria: Sure. So private equity, venture capital, hedge funds are all examples of private capital or private markets. These are what used to be called alternative investments. So investments, which are a little bit more tricky to understand possibly to value than traditional assets like stocks and bonds. They’re often private, in other words, many times the funds themselves are not publicly listed like many stocks and bonds are. And because they’re illiquid, it’s felt that they may have slightly higher risk because you can’t take your money out whenever you want. But on the other hand, you can make a better return if they’re managed properly. And so, turning to private equity of these three different groups, private equity, venture capital, and hedge funds they typically invest in slightly later stage businesses than venture capital. Ventures capital tends to be more startups, so that private equity can do startups. And private will often invest in a business, buy a business, have a significant influence in a business rather than just take a small stake.

Sanchin Khajuria: Whereas venture capital can often… It can do that, but it can often just take a smaller stake in a business. With hedge funds, they’re often investing in a private vehicle but enlisted securities. So when you boil it down, you have private equity as an illiquid investment or less liquid investment buying control of or taking a significant influence in a business and operating business one that’s pretty much up and running or needs capital to grow. It’ll then improve that business through operating performance. And then it’ll be sold with the profits going back to the investors, less the fees and compensation for the private equity firm. Does that make sense?

Frank Curzio: That makes perfect sense. Yes. And thank you so much for doing that again. I like bringing the whole audience in, and this way, everybody can understand. You have a book out, Two and Twenty: How the Masters of Private Equity Always Wins. We’re going to talk about your book in a minute, but just the part why How the Masters of Private Equity Always Wins. Talk about the business model here, because from back in the day, you seem like they used to take stakes in businesses. Now it looks like they’re buying publicly traded companies, bringing them private, changing the management team, changing the structure, leveraging right? Leveraging the opportunity and then coming out again publicly or through IPO and again, that’s a liquidity period. Why do they always win? What’s the secret sauce behind this? Is it simply like, “Hey, we see a company that the management team, and the way it’s being managed is terrible right now. We’re going to come in and restructure this.”

Frank Curzio: What is it that they see and how come you say they always win because it seems like they always win. It seems like they’re always there to buy these companies, have them go private, or even invest in them. You said sometimes early stages, almost every time they exit, and again, when I say every time we’re talking about the last 12 years and one of the biggest bull markets ever, a lot different than it is right now, than the pre-credit crisis. But what are some of the things they do differently from everyone else? What’s the secret formula?

Sanchin Khajuria: Let’s start with a couple of basics. Because you mentioned a lot of good things there. So, the investors in these funds are often pension funds, retirement systems, sovereign wealth funds, another large institutional investors. And increasingly, the pyramid of who’s going into these funds has diversified to, I’d say, the mass affluent, and going forward, I think you’re going to find more retail investors. So, that captures quite a lot of people. That captures people that have 401ks or IRAs that captures people who are working in public service jobs, private sector jobs. In other words, they’re investing for a very large part of the working community out there. And they’re doing all of the things you mentioned. They’re buying smaller stakes, they’re taking companies over with their public or private, and they’re enhancing them before they make an exit. So, what is the secret sauce? I mean, you’ve cut straight to the heart of the book.

Sanchin Khajuria: I think the most fundamental thing is that when you work in private equity, you are acting as a principal, not an advisor, you’re not a banker, you’re not a consultant. You are thinking and acting like an engaged owner. And remember these investments can be for five years, seven years, 10 years. And so these deals are not trades. They’re not things you print overnight. It’s not a trading room. It’s not even a hedge fund. It’s not only a significant part of your career. The timeframe is a significant part of your life. And so, you are quite incentivized over that period to make sure that investment of your time, of your career, of your life is worth it. Makes sense that it works out for you, for the investors, for everybody, hopefully for all the stakeholders in that enterprise that you’re lending money to, or buying a stake of, or taking control of.

Sanchin Khajuria: And the key difference is when you are thinking like a principle, not an advisor, it’s important that you are motivated and compensated in that way. And the big incentive in private equity really is that they eat what they cook, and that makes all the difference. They’re not there for the salary or the bonus. They’re there to make sure that there is a profit to their investors, because that is the primary means through which the compensation will come. Now these days, with the very big private equity firms, many of them are listed publicly. They’re also issuing stock. There are various mechanisms where that investment proceeds from gains can be compensated to key employees of stock. So, there’s wrinkles around it, but fundamentally, they’re in it for the result. And that I think that motivation is really behind it. I mean, put it this way.

Sanchin Khajuria: This is your show. You are motivated for the success of this show. It’s your show it… When you own something or you have a significant personal influence in it and stake in it, you are going to be acting like a business owner. And that I really think is a huge difference. It’s not market tracking, it’s not passive investing, it’s highly active investing, and it’s at a large scale, as we discussed in the book. So, what really is the connective tissue in all this, is the people. It’s active investing because it’s nothing that a supercomputer can do. It’s not index tracking, it’s not passive. And so, those folks who are working in this industry are incentivized on the results. They eat what they cook and they behave as if they really are active engaged owners. That’s really, I think the crux of how it works.

Frank Curzio: Yeah. That’s a fantastic explanation. And it seems the importance, not just the long-term, these businesses I believe in, and they’re incentivized, right? But you… It all comes down to people. Now, I just brought up KKR as you were talking, and this is KKR list of portfolio companies. So, this is 2022, and again, if anyone’s following along here, you don’t have to read every single copy but 2020, just look at the amount of them 2020. This is KKR, right alone. We’re not talking about other private equity firms, Blackstone, Carlisle, Vista, TPG, a lot of them.

Frank Curzio: Where do you find… Where these companies find good management teams and find the people, I don’t think that’s really hard to do with a list of companies like this, or is it just people who specialized in certain industries or these companies run, “Hey, this is the way they’re supposed to be run across the board.” But how is it that you find great people? Because it seems that is that the key component, right? Of course, you got to be incentivized. You got to believe in the business on long-term, but you have to have the right people in there. And this seems like a ton of companies. I guess how does that process take place to find the right people to run these?

Sanchin Khajuria: So, I mean, look, I think one of the key skills is to have the humility to understand that probably the people who are doing some of the hardest work are on the shop floor. They’re working in the companies. They’re not at the boards. It could be the management team, not just the CEO, but the rest of their management team, the next level, the next level, all the way down to the folks who are actually delivering the services or making the products. And so oftentimes, private equity will find a very good business with a good management team that needs some help to be great or overcome some shorter term challenges. That doesn’t mean you need to start from scratch with the folks who are there. You may need to augment, you may need to make some changes. Sometimes you have a very, very good business plan or idea from seasoned executives who are in the industry already, but they’re looking for their next challenge, their next project.

Sanchin Khajuria: And so what they need is the capital, the network, and the analytics to be backed basically by private equity to go off and do another venture in the sector. So, whether you look at established companies that need help, it could be capital grow, it could be turnaround, if something is not going well, it could be overcoming a stumbling block, or you’re looking at backing a winning management team already. It’s absolutely a symbiotic relationship. And so, what you find with the major firms and you pick one of them, the great firm is that they have these entrenched relationships across sectors that have built up over decades. And with each deal they look at, with each deal they do, that network tends to grow compound, multiply supply, and so on. So, those are the firms that have what I call emote around the business. They have a sort of compounding effect.

Sanchin Khajuria: And so, they may look at five deals in a particular sector. They may do none of them, but they’ll have those contacts. And that sector could come up in some form or fashion in the next year. Or, they could look at another sector where the prior sector was supplying that industry, or it was a customer of that industry. So, they have this kind of lens that goes 360, goes in and out across the economy. And with that lens is not just the intelligence, the data, but also the people working in it. So, they’re constantly building their networks, and that’s I think a fundamental reason why it works so well, as you said, it’s a people business, it’s active management. And so they’re not looking just to have great investment professionals who work at the firms, they’re also looking to have great investment professionals they can partner with and portfolio companies.

Frank Curzio: Now let’s turn to… Okay, you find an idea, you like the company, wherever it is, it could be public, private or whatever, but let’s go with a public company, and then you make your move. Now, I know a lot of leverage goes behind this, and recently even, Bloomberg reported this, which you’re on Bloomberg a lot, private equity firms have loaded more debt onto their acquisition targets than ever before. This is from January of this year, talk about last year. We know a lot has changed this year. But surpassing their pre-pandemic level and even the glory days of 2007, and just talk about how it’s six times, right? Earnings, so debt equals six times earnings, which is a great thing. It makes sense, right? When you have interest rates at zero, but now, we know that times have changed. And what we saw in 2007, if I remember correctly is KKR taking over First Data, and that didn’t work out so well.

Frank Curzio: It finally worked out. That’s why I love it, private equity always wins. Eventually ,it did win and it worked out, but it was a good 7, 8, 9 years it felt like they had over $20 billion dollars in debt, which is more revenue than First Data was generating. Then you had… Was it Blackstone that took over Hilton that took a while because they took over those companies in 2007, just before the credit crisis. We’re not in a credit crisis now, but we’re seeing interest rates go higher, debt become more expensive.

Frank Curzio: Does this mean we’re going to see… Is it getting more difficult for deals? And I know you have record amount of cash in the industry, but from the leverage part, is it difficult? Do you see it slowing down a little bit? How is that impacting and would have, has this industry learned from the last time where sometimes, you’re going to be wrong, you’re going to have the right idea, but you may be wrong on timing, like in 2007 for the credit crisis and companies that may have taken over early this year, even last year, you’re seeing these valuations come down significantly right now. Talk about those conditions of the market and how private equity companies are adjusting because we’re definitely in a different period than were a year ago today.

Sanchin Khajuria: So, these are some excellent points. And I think we need to break them down. So, you’ve talked about leverage, you’ve implicitly talked about valuation. Because if you’re buying something at six times and adding equity on top, you’re probably buying it at, at least nine times, maybe 10 times on average. And you’ve talked about the risks in the capital structure if conditions change. So, let’s break all those things down. So, I think first of all, looking at averages across the industry can be helpful as a crude metric, but it’s quite similar to look at these kinds of averages across any industry. You could look at all journalists in one, go and say, “Journalists like this.” Or you could look at all industrialists and say, “Industrials like this.” Or, “All private equity folks are like this.” I think there are very, very different ways of making money for a lot of the major firms. So, it’s important now have the sort of firms that to do more with that often go for a slightly lower purchase price relative to benchmarks.

Sanchin Khajuria: In other words, they’re looking for a good deal. When you pay less, by definition, you will put less debt on that company. Because let’s say you’re not paying 10 times, but you’re only paying six. Then, you’re not putting six times the amount, you might be putting three or maybe four or maybe two or in some cases like some of the things I’m doing in technology right now, some of the big firms, big private equity firms specialize in technology. Often, they don’t use any debt. Or very, very little because they don’t think it suits the business model. So, I think you do need to break it down rather than looking at the aggregate. Those firms that are looking for a deal in some way, tend to use a little bit less debt because they’re paying less. And so, they are less reliant on those valuations staying, as you said, kind of elevated when they come to exit.

Sanchin Khajuria: If you’ve paid six times for pretty much everything on average, and by the time you sell, the market is at six times, well, you haven’t been relying on multiple expansion. Hopefully, you’ve created some value in the company in that time. And so, the extra earnings profits growth you’ve generated in the company means that your exit success is not dependent on selling at a higher multiple. If conversely, you buy everything at 10 times on average, and you load it with six times debt. Well, what if those multiples go down, they could go up, sure. But possibly, they’re in a difficult time, more likely to go down as we’ve seen this year and through the pandemic, through the financial crisis through other shocks, well then, you’re a little bit more exposed. And so, I think you need to look at when you’re looking at which decision you’re making, which private equity fund you’re backing, which firm you are backing, essentially the people you’re backing.

Sanchin Khajuria: You have to look at how they invest. You have to understand that, you have to break it down because it’s not like passive investing. It’s not like saying, “Let me buy this ETF on the ESNP, and I could do it through BlackRock, or I could do it through Vanguard, or I could do it through someone else. Maybe they’re similar let me look at the difference in fees.” A lot of these firms are very, very different. And to say that they all do the same thing, I think is untrue. And that’s where a lot of people trip up because when they’re looking at private equity from the outside, they kind of look at it in one go. Second point, if we move… If we push that to one side, and if we say, “Okay, now, now let’s look at lots of firms that do similar things like this, buying at 10 times, leveraging at six.” What’s going to happen when an interest rates go up.

Sanchin Khajuria: Well, obviously you find… And you mentioned some of the stuff I’ve done on Bloomberg. When the financial conditions change and they’re refinancing that debt, they’re not going to refinance that debt at a 5% high yield interest rate. They’re probably end up refinancing that at a higher rate. And so, it’s important for the investment professionals working on those deals to make sure that the capital structure can withstand those higher interest rates. Because right now, debt that was issued through the pandemic at 5% high yield with base rates going up, with the Fed rates, going up, starting to look a little on the thin side. And so, that’s where I go back to saying, you need to do your homework as a private investor. If you’re going to go into these funds, you need to understand this a little bit better. And that’s one of the purposes of the book really is to try and shed some light on how deals get done and the sort of traits that I look for in successful firms.

Frank Curzio: Yeah. And I’m looking forward to it. I’m through the first couple of chapters, so I’m very excited. I just got the book recently, so… And very exciting. So, so in this time, it seems like private equity is… I wouldn’t say in the driver’s seat, but is much better positioned because it seems like even with hedge funds and investing strictly in private companies, we’ve seen these valuations come down tremendously, right? And they’ve done series CDEFG, whatever letter you want to pick. But in the past 12 months, what we’ve seen is remarkable because anyone who’s put money pretty much in the last 12 months that valuation’s down considerably in some case, especially if you invest in the past, like four or five months. What… But private equity, it seems like what you’re telling me has a significant advantage because you really don’t care about what’s going on right now, you care what’s going on in the future, and that’s a long-term business plan.

Frank Curzio: Is that fair to say? Or is it something that, “Hey, you know what? These valuations have come down, especially within the private markets, and maybe some of the stuff that you do have on your balance sheet right now, or in your portfolio has come down with some of these private equity firms.” But is there a concern, is there a worrier, is it kind of like, “Hey, we’ve seen this before, and we’re in for the long-term. And as long as we’re doing the right thing here with management and continue to build revenues and earnings and build this company up and reach these goals, we’re going to be fine. But what’s the mentality right now in this type of market. Is it, “Hey, let’s pull back from deals. Let’s be more aggressive because things are cheaper?” Or, are you also looking at your portfolio saying, “Okay, these things are down. We have to worry.” I’m just curious about the mentality there compared to, obviously, not just the average investor, but maybe it’s to hedge funds and venture funds.

Sanchin Khajuria: Sure. So, I mean, look, you always care what the valuation environment is, even if it doesn’t necessarily impact you directly year to year. I think you’re always really focused on where valuations are because you may be about to sell something, or you may have expected to sell something within a certain timeframe, and then you have to wait, or you may decide to wait, or you may look at another way of exiting and private equity firms are very creative about that. They can also sell to other funds that they manage themselves. They can sell to corporates that have particular needs despite depressed valuations. I mean, private equity firms are very creative in how they sell, but they definitely look at valuations. I think, obviously, when conditions are a little bit more difficult and valuations are, let’s say less stable, less robust, there’s more volatility in the public markets than you would expect to see more folks looking from the private equity industry at public companies and companies in general, businesses in general, to see where they can get those good deals that we talked about. That’s natural.

Sanchin Khajuria: And that would be, the right thing to do for the investors. As I said, pension funds, retirement systems, a lot of pretty ordinary folks who commit to private equity funds as part of their portfolios. So, I think that the mentality is definitely as follows, “I’ve been following these sectors, or I have these investment thesis, maybe in the past few years they were a little bit expensive to execute because, as you said bull market run. Hey, it’s now a little bit cheaper. Does it make sense? Let me weigh that slightly lower valuation against the prospects because maybe the macro economy is not going to do as well in the coming years.” So, they’re constantly weighing up the valuation opportunity ahead of them with the prospects in the coming years, but you’re right. Fundamentally, they don’t necessarily have to sell tomorrow.

Sanchin Khajuria: And one of the advantages of being a liquid, is that you can hold onto things for longer. I’ve seen that many, many times, and ultimately, you can get a fantastic exit by holding it longer, building more value and selling over the longer term. So I think, I would expect to see more activity, not less, certainly more looking, more building, more information, building, contact building. And I think you’ll see a deal volumes continue to be reasonably healthy. What you may see is that if financing conditions get difficult, that’s for high yield finance, like we talked about before. You may see fewer of those deals where the leverage is pushed.

Sanchin Khajuria: I tend to steer away from those or try to anyway, but you may see fewer of those just because it’ll be slightly more difficult to raise high yield debt and numbers that make sense. But in general, I think you’re going to see more and more activity in the current valuation environment. And yes, you can hold things for longer, you can do more with the businesses, you may decide to have… You may say, “Look, I’m going to hold this for another couple years and wait until the environment changes. What else can I do? But I can make that acquisition that I was going to leave for the next buyer. I’m actually going to make it myself. I’m going to propel this organic growth initiative. I’m going to do something with my time, such that waiting, is not just a question of waiting and doing nothing. I’ll be waiting, but I’ll be productive in that timeframe.”

Frank Curzio: That makes sense. And your experience goes to Apollo. I think it was over 10 years you worked there. You can correct me if I’m wrong on that also, I think limited partner at Blackstone. And now, is it your own company that you have at Achilles Management, is that correct?

Sanchin Khajuria: Yeah, so I run my family office. I was at Apollo for just over seven years, I was a partner-

Frank Curzio: Oh, it’s seven years, oh.

Sanchin Khajuria: But I now… I’ve been a partner there for a while, and I’m now investing across a number of firms, number of very good firms, Blackstone, Carlisle, some Goldman Sachs, and others who are investing in private markets.

Frank Curzio: And you specifically, so I’m going to put you on a spot here, but are you looking at the market’s down, you want to buy stuff when it’s cheaper, especially in days like this, when you’re seen to leveraging, which hurts all companies, and even the good ones sometimes get unfair punished. Are you looking at specific sectors? Or you look at it, deal-by-deal basis? Is it bottom-up approach, a top-down approach? Is it like, “Hey, we really want to get into FinTech now, or crypto, or is it finance or leisure” The… Whatever it is, airlines or… Which might be tough, but you know, the Hiltons and stuff and hotels, but how do you look at it from your point of view in terms of what’s your process of screening? Is it, “Hey, these are the seconds you want to get in, or is it individual basis bottoms up.”

Sanchin Khajuria: So, there’s a couple of lenses. I think first, as I said, I start with the people. I start with the firms that I think are going to consistently deliver good returns in excess of their rivals, in excess of the public markets. Because obviously, you’re paying higher fees, so you want to get something for that, right? And then, I look at what they’re good at. I marry that up with what I could do on my own, as a lot of times where it’s better to invest through a firm than doing guilds directly. It could be scale, it could be expertise, it could be lots of reasons. And then, once I’ve kind of narrowed down the firms, I think are great firms to work with, partner with, give capital to. I look at the strategies where I think they’re strongest. And then, I look at using a different lens, which of those strategies do I want more exposure to?

Sanchin Khajuria: So right now, it’s actually not just pure private equity. A lot of what I’ve been doing is in what people often call hybrid capital. So, kind of in between debt and equity. Preferred equity, structured equity, where you may be giving up a little bit of the upside, but you get some downside protection. You’re less likely to lose money. Because I think in today’s market, that could be one of the best risk-return tradeoffs out there. But the nice thing is that private equity now is really mainstream. It’s not some esoteric corner of Wall Street and because it’s mainstream, the menu’s huge. You can do buyouts, you can do tech, you can do life sciences, you can do financial services, commodities, you can look at whatever geographies you want. After a long time, Japan has opened up, has a very interesting geography for more private equity activity after years of much lower deal volumes.

Sanchin Khajuria: So, you could look at a developed market like that if you want. There’s lots of different ways to invest, and so, it’s very important to do your homework, do your research, speak to your advisors, brush up on it. Because like I said, it’s active investing, it’s run by people. And that’s really where I start. I look at who I think are the right people to back to partner with, to hand over money, to pay these fees that they’re charging, and where are they strongest, and how I narrow that up with what I think I want exposure to.

Frank Curzio: No, that’s great. Great. And for individual investors, how could they invest in this industry? Is it easy as buying, Blackstone, KKR, Apollo on public markets, and if they do, what are some of the metrics that they should look at? I mean, sometimes, traditional PE or PPG ratio, it could be dividends based on this. But in your specific industry, you have different metrics where it’s internal rate of return, multiple invested capital, public market equivalent, things that you’re not used to seeing on your typical Yahoo finance page for individual investors.

Frank Curzio: But one, how could they invest in this? I guess they could buy these kinds of, like, stocks. And also, how do you choose the difference if you’re doing in comp analysis and comparing these things? How do you know which is… Or ,you’re looking at maybe the portfolio of holdings, and how that payout period’s going to be, and some of the interesting companies that you like, or is it all the above or… But what are some of the things individuals investors could look at before purchasing? Because they have choices, but what would make them select one over the other in some things that maybe you would look at?

Sanchin Khajuria: Sure. So, I think it’s very important to clarify that historically individuals have not really been able to access private equity investments. And in many cases, a lot of individuals still cannot. There’s a perception in some circles that these are alternative investments that are only the preserve of very large institutions or ultra high networks. So… But I think that’s changing it hasn’t fully changed, where anybody can just click and buy, but I think gradually the major firms are raising capital from individuals in the mass affluent bracket, perhaps through feeder funds. So, it’s aggregated vehicles. And so, you can subscribe to a feeder fund, you may be able to put in… Still a lot of money, $100,000, but I think those checks are coming down. And as you subscribe more… As more of the pyramid is kind of opened up, you’ll see that more and more retail investors can go in, but we’re not there yet.

Sanchin Khajuria: It’s important to be very clear about that, it’s just opening as opposed to fully opened. And I think that’s going to be a major initiative going forward. So having said that, I think it’s important, just look ahead a little bit and say, “Now let’s imagine a world where most people can get into this, either it’s their pension manager that is making that selection, or you may be able to work with that pension manager to decide what the selection is. Do you want to go in this particular passive fund or this particular active fund, you may, may not have that choice depending on your retirement account or your pension plan.” And then going forward, it could be you as an individual who’s actually selecting individual funds to buy, just like you, we’re not there yet, but if you were to buy, let’s say an ETF, you could then click on and buy another fund.

Sanchin Khajuria: So, I think the most important thing first is to do your homework way ahead of this trend fully materializing. And I start with understanding, how are these deals really done? What is the mindset behind them? And what are the results like you said, and you… I’m not sure if you’ll get a Yahoo page for this stuff, but I think you’re going to need a lot more than just Yahoo page for this stuff. So of course, you look at the IRR, you look at the kind of prices they pay, how many companies go wrong, defaults, bankruptcies, sometimes they can rescue things out of bankruptcy. I think most folks on your show in particular would be able to make a reasonable stab of the kind of metrics that they should be looking at for sure. But then, I think you really need to engage with them.

Sanchin Khajuria: And so, you need to find the right forum, and I’m not sure all of those forums are set up to be able to really understand in detail what’s going into these funds, what kind of deals are they doing? And so, I think you want to approach these sorts of topics now with your eyes open because you want to really take ownership of this part of your investment portfolio. And the reason I say that is because, if you look at a traditional model of investing, you might have what, 60 40 between in stocks and bonds, something like that. People talk about that model a lot. Going forward, I think you’re actually going to see alternatives as a slice of that pie chart. Maybe it’s 20%, maybe it’s 25%, and I don’t really call them alternatives anymore. You’ll see this in the book, I call these really mainstream active investments.

Sanchin Khajuria: And so, if you look at this active asset management, this illiquid active asset management, you’re going to put a part of that in your portfolio. And so, the first thing you’re going to figure out is, how much of my can I actually afford lock up over long periods of time that I won’t be able access, or maybe very difficult access, even if really need it, and sort of do that homework ahead of time.

Sanchin Khajuria: And so, once you figure that out, you start to look at the firms, look at the metrics, look at the motivations, and we talk a lot about that in the book, and then look at some of the data that’s coming out. You really need to look at your own financial profile and say, “What am I really seeking to achieve? Am I looking to achieve financial freedom a little bit earlier? Can I tie up a bit more capital now, adjust my spending patterns or whatever it happens to be, to be able to sort of get those compounded returns, hopefully in a shorter timeframe or over a shorter timeframe. Or am I just saving for the long firm for retirement? Am I saving for my kids’ education? Is it a house?” So, I think you need to do that sort of health check internally, as well as doing some research, some homework on private equity and the reason you need to do it now is, you want to do it before it gets to your door, not when it’s at your door. And you’re being asked to make a decision.

Frank Curzio: Makes a lot of sense. And it’s funny that you said that, because this is from Wednesday in the Wall Street Journal, private equity firms now for millionaires, and private equity firms are now looking at another opportunity potentially even bigger involved in the so-called mass affluent individuals worth a million or more held $79.6 trillion in investible assets globally in 2020, according to 2021 report. But yes, I mean, just to show you, so… And again, thank you so much-

Sanchin Khajuria: Yeah, I’m just going… Just add one point. I mean, the industry-

Frank Curzio: Yep.

Sanchin Khajuria: Right now, if you look at all, private capital is around $12 trillion. And so, through the next decade, it could grow to $20 trillion. You just mentioned a much bigger figure. And so, if you even imagine a little bit of that market share shift, a little bit of that shift into private markets assets, you can see that we’re talking about tens and tens of trillions of dollars in the coming years.

Frank Curzio: Yes. A lot of money. So, great opportunities to invest alongside great management teams and a great investment style. So, you talked a lot, and you said, you mentioned it, in your book, Two and Twenty: How the Master of Private Equity Always Win. Talk about your book, what was the motivation behind it? And was it just, “Hey, I’ve been in this industry for such a long time that maybe people don’t understand it, and you want to provide hidden secrets,” again, I’m up to through first few chapters. I just got it this week, and it is very, very good. I’m excited to read the rest of it, but talk about your book here and yeah. What was the motivation? Let’s start there with writing it.

Sanchin Khajuria: So, I think you’re right, that it is an in an industry that hasn’t always had either the best press and isn’t always the best understood, but I think there’s a lot of very good things about the industry. Of course, there are firms and funds that underperform, but there are great firms and funds and great people that perform very, very well. And I felt that there was an imbalance. Often the debate about private equity is, “Is it a good thing, or is it a bad thing?” As if life is black and white like that. And often the views are a little partisan or polarized you have, “Oh, this is the… These are the folks that think it’s a good thing, and these are the folks that think it’s a bad thing.” And of course, like so many things in life, so many things you could invest in, it’s just not as simple as that.

Sanchin Khajuria: And so, what I wanted to do is move away from this idea of trying to either cast it as perfect or wrong and look at it with a slightly more realistic lens. And I think that more people should learn about the importance and influence and size and scale of private markets, especially private equity. It’s the most famous part of private markets, how it transforms companies, how it’s important to the economy. I think all those things are very true and because more of us are going to be looking to consider investing in private markets, it’s important they really understand the traits, the mindset. And I think most of all, what is the winning psychology that is behind what I’ve seen work very, very well in this industry. So, that was really the primary motivation behind it. And I think that a lot of people don’t think about private equity.

Sanchin Khajuria: I think it’s almost been hiding in plain sight that it’s grown to this level it’s going to continue to grow. We all know the big tech firms of Silicon Valley. We know about Apple and Amazon and Google and so on. We’ve been reading about Elon Musk and Twitter, the buyout. How much do you really know about Blackstone or Carlisle? How much do you know about firms that are managing hundreds of billions of dollars approaching a trillion dollars in some cases. Shouldn’t you go a little bit more? So, you have big tech, you have big pharma… Through the pandemic, we all heard so much about Pfizer, right? But this is big finance. And so, I think that we need to open our eyes a little bit to this industry, understand it, and ask questions, what we agree with, what we disagree with. We stand a much better chance of improving what we understand and contributing to the discussion constructively if we understand it. And that’s really what I’ve tried to shed some light on in the pages of the book.

Frank Curzio: No, that is great stuff. And it’s funny that you said that too, because it does get a bad rap. Maybe that’s from Mitt Romney, Bain Capital, and running for president against President Obama, and I know they took shots at this corporate raider, buys companies and then destroys lives and fires everybody. And I just think that negative connotation about the industry, it kind of stuck a little bit, but not for me enough for people who don’t understand this industries, but I really appreciate you explaining that. So, if people want to learn more about you, they want to purchase your book, they can go to Amazon, I’ll bring that up again. But if they want to learn more about you again, contact with you, how could they do that?

Sanchin Khajuria: Yeah, sure. So, I’m very happy to take questions my family office, has a website, Achillesip.com, they can just click the contact button and send me an email. And the book will have a website when it’s launched. I think next week, there’ll be contact details there, pretty soon after launch, I believe. And so, there’s many ways to engage, and I’m obviously happy to come back and talk to you whenever you want to continue the discussion. I think that, if people are left with asking themselves this one question, if I go into private markets, am I going to be adequately compensated for the risks that I’m taking? That’s a question you really need to understand. And that should be some kind of call to action, whether it’s this book, or this book in combination with lots of other ways to learn, because you really need to be informed. And that’s what we’re seeking to do.

Frank Curzio: No, it’s great stuff. And I appreciate you coming on. You can tell my questions a little over the place because I am very interested, and I was looking forward to interviewing you, talk to you, someone who’s been in this industry for a very, very long time, and I know you educated my file investors today. I really appreciate it. And you’re welcome back whenever and look forward to the book. I did get that pre copy, which is cool, and its very, very good, guys. So, definitely go out there and buy it. So, I appreciate it. And hopefully, you’ll come back on soon.

Sanchin Khajuria: Absolutely. Thank you so much. It’s been real privilege. Thank you.

Frank Curzio: Thank you. Hey, guys. Great stuff from Sachin. Can’t wait for us to interview more open individual investors, which we’ll see, not just millionaires, which is that part I read in the Wall Street Journal. And I’m not talking about just buying publicly traded private equity firms, but becoming actual investors before they take over companies. That would be really nice. The real money’s made… Thinking a lot of these names, and you guys know me, listen to me for a long time. I rarely endorse books because most are about the author making money and less about educating individual investor. And when I started reading this book, it was fantastic. I couldn’t wait to interview Sanchin. Two and Twenty: How the Masters of Private Equity Always Win. Reading it right now, it’s really, really good. Will be available next week on Amazon and everywhere. I’m not getting paid for that and not getting a percentage of sales.

Frank Curzio: So, if you want to read it, read it, again, I only endorse things that I think are going to be great for you. As you can tell with, even with that interview, I always want to make sure that, we’re speaking to our audience where everybody understands private equity. We’re not just throwing it at you and what’s difference between a hedge fund and a venture fund. He did a great job explaining that, which I appreciate. I know some of you on a level where you don’t need that explanation, but others do, want to bring everyone in because I thought the interview was really, really good. However, I always say this, podcast’s not about me, it’s about you. So, let me know what you thought, frank@curzioresearch.com. It’s frank@curzioresearch.com. I will say it was great having Sanchin on. He’s has loads of experience in the industry.

Frank Curzio: I learned a lot from that interview. We had great conversation afterwards with him saying, “Man, you really asked all the right questions, that was really good.” Because usually, when you go on these things, they give you like a list of questions that you could ask or whatever. And for me, I like doing a ton of research on my guests because I’ve been doing this for such a long time. And he really, really appreciated that. And I could see us our paths crossing sometime in the future and having him back on the podcast as well.

Frank Curzio: So, really great stuff. But I mean it: The podcast about you, not about me. Let me know what you thought at frank@curzioresearch.com. That’s frank@curzioresearch.com. And guys, that’s it for me. Have a wonderful, awesome, awesome weekend. Spend time with the family. Have fun, drink a couple beers, relax, don’t talk politics, whatever you do, don’t say that. This is going to be one of the first free weekends I had in a very long time, see my kids, travel all over the world now with their travel leagues. And every weekend, it seems like I’m going someplace else. But this weekend, nobody… So, I’m going to relax. Maybe get around a golfing, have some fun, have a couple beers. Hopefully, you guys could do the same, but have a great weekend. I’ll see you guys next week. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.