Steve Klinsky has been in private equity since before it was an industry. He co-founded Goldman Sachs' first buyout group in 1981, later had a front-row seat at the famous RJR Nabisco deal and, in 1999, started New Mountain Capital by rejecting the then-prevalent debt-heavy style of dealmaking. Today, the firm manages $60bn, has a negligible loss rate and recently closed a record fund against a difficult market.¹
In conversation with Steffen Pauls, Klinsky explains the thinking behind their track record and where he believes private equity is heading next. Here are a just couple of key takeaways:
Defensive growth as a filter
New Mountain operates across 12 sectors and 25 subsectors, all selected for their ability to hold up regardless of the macro environment. "It's like building your house on solid ground," Klinsky says. "You want to be in an industry that can do well whether times are good or bad."
The great opportunity of the mid-market
Klinsky argues it is easier to take a company from $500mn to $2bn than from $10bn to $40bn as there are more buyers, more room to grow and more things a founder never had the chance to do.
The distribution backlog is a 2021 problem
The companies stuck in portfolios today are largely those bought at peak valuations in 2021. "Companies being bought now may be some of the best buys ever, six years from now," Klinsky argues.
Private equity only works if you pick the right manager
With thousands of funds in the market, Klinsky believes the asset class delivers for investors who select well and fails those who don't. "The job of identifying a good fund from a bad fund is a very sophisticated, difficult task."
