Private Equity Done Totally Right

Three years ago, I wrote an article about the work KKR, and specifically, Pete Stavros’ industrial team, had done to make private equity firms fly right.

Fly Right

I had a conversation with Pete, who has since been promoted to America’s co-head of KKR’s private equity platform, in which I shared some similar experiences with my illustrious grandfather, one of the co-founders of van Melle, the original maker of Mentos.

Both of us learned from the morals bestowed upon us by the examples of our respective paternal forefathers. Success clearly does not need to go over the back of others. You can build a winning business from which your most important shareholders, employees, can win commensurately.

The reputation of a private equity firm will improve dramatically when the employees also obtain a vested interest in the returns of the company. No longer will private equity be seen as pump and dump promoters of valuations not living up to shared value. Of course, value creation presupposes private equity firms are not just investors but also become better assistants to the company executives currently at the helm. Inflection point opportunities abound.

Doing right comes at a cost, the cost of understanding and being an active investor. We have always run our businesses that way, by being in the trenches, by establishing a better normalization of truth around which the company can dominate and outperform. For upstream change leads to magnitudes of downstream efficiencies.

Pete’s work has gotten a lot of attention recently, and I applaud him for breaking ground on how private equity should operate.

New Thesis

Yet, private equity needs more improvement. The investment thesis of private equity must be improved, not in the least, to avoid the asset by default entering into the downward spiral of an index of self, like the S&P500.

Consistent outlier performance cannot be produced by using the evolutionary fallacy of an ESG thesis, hinging on sustainability nonexistent anywhere in the universe. Outlier performance will come from a better normalization of nature’s truth, guided by nature’s first-principles of renewal. A big and important difference.

Sustainability as an evolutionary lie is finite, as all lies are. Renewal, per nature’s truth, yields the best proxy for infinite value, proven over 16 billion years.

The evolution, longevity, and excellence of the human species are predicated on our adaptability to nature’s entropy, a vector of expansion quite different from the growth for the sake of growth ideology of a cancer cell (Edward Abbey, 1927 – 1989) promoted by the misplaced inventions of the finance industry, false positives of human excellence, made popular today.

More and better garage doors, Pete’s success story referenced above, are nice but do not improve human adaptability to nature’s entropy. We will need fewer garage doors soon when we keep investing in the solipsism of humanity that does not strengthen human renewal.

Short of a human theory instilled in the operating systems of humanity guarded by governance, astute investment firms like KKR can play a timely and crucial role in the excellence of human renewal by investing in the causal rather than consequential triggers of human efficacy.

We must begin to invest in the cause of human efficacy, or otherwise, the consequences of pleasing ourselves will drown us. We stand ready to assist.

Let’s lead the world by example with new rigors of excellence we first and successfully apply to ourselves.

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