Sachin Khajuria (03:08):

Now for me, I started as an investment banker on Wall Street. I then joined an investment firm. I was a partner, for example, at Apollo, and I retired a few years ago to open my family office. I’m now an investor in several firms: Apollo, Blackstone, Carlyle, funds managed by Goldman Sachs, and a number of others. I have about 25 years of experience in private investing and finance. And that’s why I have this background that’s hopefully helpful in trying to understand private equity.

Clay Finck (03:41):

I was looking into your background in preparation for this interview and I saw that you use artificial intelligence in your business. If you don’t mind sharing, how does AI play into your investment strategy? Is that related to what you’re doing with private equity or is it related to some of your other investments?

Sachin Khajuria (03:59):

In my family office, we have a public investing strategy, you could call it a hedge fund, and you have private equity investing. Now, the AI is primarily used in the public investing strategy to help drive the hedge fund style activities we’re doing. However, the data that’s processed by the artificial intelligence about where the market’s heading, predicting key performance indicators of the economy, trying to assist engaging the sentiment of the consumer interest rates, macro-indicators and so on, that is also helpful to me on the private equity side, when trying to decide which strategies I should be selecting. So if, for example, we feel that we’re going into a macroeconomic slowdown, we’re not entirely sure about recession, but we see storm clouds. You want to look at private equity strategies when you’re putting new money to work that may be good in that kind of macroeconomic setting. Maybe they have an expertise in distress. Maybe they are good at picking up companies when they have suffered issues during a recession, that sort of thing.

Clay Finck (05:08):

Now, we’ll hear these terms that are thrown around in the finance industry: you got venture capital, private equity. Those are two terms that are constantly being thrown around it feels like. Talk to us about the difference between these two terms for those who might not be familiar.

Sachin Khajuria (05:24):

Venture capital typically is backing earlier stage enterprises or ideas, and private equity is typically backing slightly later stage or late-stage businesses and ideas. So if you have a venture capital investing platform, you might see 10 great ideas. One of them might be the next Google or Microsoft, and nine or 10 of them may not be. And then within those, some of them, they just fail. You’re prepared typically to take the risk that some things may not work out very well or at all, because you know that given your expertise in judging which ideas could be great ideas, some of them will turn out to be incredibly successful. So overall you’ll have a good performance across that portfolio.

Sachin Khajuria (06:10):

With private equity, it’s rare and I haven’t seen it, that firms are kind of accepting of the fact that some investments may just blow up. You’re typically trying to make good returns on every single deal. Now you may not discover the next Google or Microsoft or Apple or Amazon, but you may get some very strong investments. You may get some that slightly underperform, but hopefully none go to zero. So it’s a different risk return. You may be taking a little bit more risk in venture capital because they’re earlier stage, but some of those deals could hit an even higher return. And in private equity, I think you probably have a narrow band of outcomes where you’re looking for most, if not all the deals to really work out pretty well. So overall you’ll get a solid performance across the portfolio.

Clay Finck (07:00):

That makes sense. Some of the listeners might be wondering why it’s even important to be aware of the private equity space. It’s an area I’m honestly not super familiar with and it seems to almost fly under the radar in the finance industry. Why is it that regular everyday investors should understand private equity when they already have access to the public markets to invest in?

Sachin Khajuria (07:21):

This is the reason I wrote the book. It is an excellent question. And if nothing else, I hope that the answer to this question is something that stays in the minds of your listeners. And Clay, if for no other reason, if they read the book for this question, I’ll be happy. The most important thing to understand is that what you just said is wrong. Private equity is not just some corner of Wall Street. It’s not out there, over there, on the West Coast or the East Coast. No. It is not an alternative niche investment strategy anymore. You’ve got to think of it as main street, not Wall Street. You have to think of it as mainstream, not alternative.

Sachin Khajuria (08:07):

Now, private markets, the most famous of which is private equity, but also includes things like private credit, infrastructure, real estate, other kinds of private investment strategies, are about a $12 trillion industry. This is not small. And through the next decade, this figure could easily grow, I think, to above $20 trillion. So you’re starting to get numbers that are riving some of the public markets. Not quite as big, certainly not as well known, but very, very large. And what that means is that private equity has incredible reach, whether you know it or you feel it, or you don’t. It’s present nearly everywhere.

Sachin Khajuria (08:51):

Private equity owned companies or companies that have been lent capital by private equity strategies or private credit or the private market strategies are sectors as diverse as chemicals, energy and power, banks and insurance, consumer and retail, aerospace and government, manufacturing industrials, media and telecom, leisure, entertainment, pharma, healthcare technology, everything you can think of across the GDP. And it’s in sub-sectors you may not think of as natural habitats for Wall Street. It could be your children’s schools are actually owned by private equity firm… The fund that manage. It could be food storage. It could be dating applications, family ancestry tracing. I’m invested in so many of the things I’ve just mentioned through various funds. Some of them I never thought I’d be an investor in, but I am through various private equity funds. Here’s an interesting one. Dogfighting fighter jets, training for fighter jet dogfighting. One of the companies that does that is owned significantly, has a significant interest in it by a private equity firm. It’s everywhere, from the military to everything.

Sachin Khajuria (10:02):

And the way to look at it is, well, if it’s everywhere, it has to be mainstream. And we’ve seen this tremendous growth in private equity activity across verticals from life sciences to technology, to financial services, and across lots of different kinds of funds. I don’t want to get too technical, but lots of different kinds of funds from private equity funds to publicly li-listed funds that are managed by private equity firms because private equity investing works. That’s why it’s growing. And the investors in these funds until now have largely been institutional investors, pension funds, retirement systems, sovereign wealth funds of other nations. Maybe in those nations, they don’t have independent pension funds. So actually the sovereign wealth fund has a function to provide for the citizens. And what’s happening with the democratization of finance is that retail investors are increasingly getting their opportunity to invest in private equity. So isn’t it about time that everyone understood it a little bit more?

Sachin Khajuria (11:00):

Now, we’re all used to thinking about the big tech of Silicon Valley, the companies I just mentioned. We can probably name who their founders are. We may be able to name who runs them today if it’s not the founders. Private equity is like big finance in a good way. And there’s a symbiosis between this industry and all these investors, and yet somehow it’s been hiding in plain sight right in front of us but so many people don’t think about it. And as more of us have the choice to invest in private equity, I think it’s very, very important that we understand it better.

Clay Finck (11:36):

You mentioned that historically institutional investors have been more involved in these private equity deals. How is private equity becoming more accessible to the individual or the retail investor?

Sachin Khajuria (11:49):

For a long time, it was not possible for retail investors to access these kinds of funds. And in many cases, it still is not possible, but it’s changing. That’s the important point. And increasingly, probably starting with the wealthier segments, the checks that private equity firms are accepting are no longer millions and millions of dollars from let’s say wealthy families, but much smaller checks in the hundreds of thousands of dollars. And that’s going to keep going down. So as more of the pyramid has the chance to invest in private equity funds: A, this is a way for private equity firms to continue to grow their activities, because they’re pulling in more capital; and B, it gives retail and other investors more of an opportunity to meet their retirement goals by not just relying on the public markets. Remember this is active investing at a huge scale. It’s not passive investing. It’s not buying a mutual fund and waiting for something to happen. It’s not buying an ETF. Now they may be cheaper investment strategies, but if you’re trying to diversify across your portfolio, you probably want to think about having a mixture of public markets and private markets. And that’s why it’s becoming more accessible.

Sachin Khajuria (12:59):

If you think about the traditional model of investing, people used to say 60/40 perhaps, 60% in stocks and 40% in bonds. Something like that. And I think we’re moving to a model where you have more like where you got your allocation for stocks. You have your allocation for bonds or government debt, let’s say, what about your allocation to private capital, private markets? Maybe that’s 10%, 20%, maybe a third. And that way you can access different strategies. And although they can be more expensive to invest in, in terms of the fees that are charged, if you pick the right firm and the right funds, you can get a better return than the public markets. And that’s why I do it. That’s why I do it for my own purposes, which is to try to access some of that higher return per unit of risk they’re taking on.

Clay Finck (13:50):

Now, to my understanding, one of the reasons that private equity is able to achieve higher returns is because they’re using leverage in these deals. They might put down 10 or 20% of the capital and then finance the rest of the purchase price. So I’m curious if you’d agree with that and if rising rates could potentially be a headwind for the industry?

Sachin Khajuria (14:12):

There’s several facets to that question. First of all, public companies take on debt too. And perhaps they’re taking, if they’re public, less than the ratios you talked about. Maybe they’re loan to value so to speak or their debt to enterprise value is 20%, 30% or 40%. Maybe it’s lower because they’re public companies, but they take debt. And I think it’s normal to finance your operations and growth with a combination of debt and equity. Typically, in most companies you tend to look at what’s more efficient depending on the terms you get and the market circumstances.

Sachin Khajuria (14:42):

So I think with the leverage buyout, yes, by definition, a leverage buyout requires leverage. And remember there are separate different types of private equity investment, but I think you’re focusing on the ones that tend to use leverage. Of the ones that tend to use leverage, obviously the less equity you put in upfront, less of your money you have at stake, the less is at risk. And the more is money that is borrowed on the asset you’re investing in having done the analysis that it can service that debt. And the less money you put up front, of course if you make a return, the amount of debt you’ve got to pay off maybe stays more or less the same. Maybe it goes down if you pay a little bit off. Maybe it goes up a little bit if you have to borrow a little bit more, but your return on that equity’s going to be higher.

Sachin Khajuria (15:25):

It’s a little bit like buying a house. You buy a house and you take a mortgage. Most of the money is mortgage debt. You may not borrow in a leverage buyout from a bank. You may raise high yield debt or use some other source of capital, but basically it’s the similar setup. And if you buy that house with a little bit of your money and more of somebody else’s money, when you sell that house, you’ll pay off that money and you’ll make a better return on what you’re putting in.

Sachin Khajuria (15:51):

I think what you’re getting at is a slightly different question, which is it inherently risky to use leverage? Is it inherently risky to put debt on your house? Well, if things go wrong, then yes, you’ve got to deal with the debt. What you’re looking for are those managers who are not just making a good equity return because they’re putting less equity up front and they’re borrowing along, but the ones who are actually originating good deals. Which means when you go back to the beginning of the conversation, we talked about you buy an asset, you improve it and you sell it. They have to be really good at improving it and really good at selling it well. And ideally really good at buying it at a good price in the first place. If they know how to buy well, if they know how to improve the asset well, and they know the right time to be able to sell it, and there are different ways of doing all these things, then the fact that they’ve used debt as a big part of the mix of money to finance the deal all along, I don’t think is something to be overly concerned about.

Sachin Khajuria (16:49):

Unfortunately, if the firm is not doing well and the deal is not doing well, then of course you have to deal with all this debt that you’ve taken on the asset. And that can be a big problem for the equity check you’ve written. Just like if you buy a house thinking you’re going to fix it up and sell it, but you actually bought it in the wrong neighborhood and it was neglected during your period of ownership, and when you come to sell it it’s worth a lot less than you bought it. Well, then suddenly you may make no return if all you can do is pay off the debt. Or if you can’t even pay off the debt, then you’re looking at a difficult situation. That’s the way to look at it.

Clay Finck (17:24):

I recently had Eric Balchunas on the show who wrote a book called The Bogle Effect, which uncovered how Vanguard became the behemoth that it has with $7 trillion in assets under management. The book talks about how Vanguard was just ruthless in minimizing the cost for these investors. They would attract all this capital because they offered the lower fees. Then because they had a wider base of investors, they could then lower the fees even more, which would attract even more capital. So they just created this flywheel effective being the lowest cost provider. Now to my understanding, the private equity space has the two and 20 model where there’s a 2% fee plus 20% of the profits above some threshold. Do you see someone like Vanguard coming in at scale to bring those fees down? Or how do you see that playing out over time?

Sachin Khajuria (18:15):

I don’t. I think that we need to remember private equity is a people business. There’s nothing automated about it. It’s not run by quant machines. It’s not run by artificial intelligence. It relies on the decisions made by investment professionals and management teams who act like engaged owners. As I said, they eat what they cook, and that makes all the difference.

Sachin Khajuria (18:36):

Just coming in from a different part of the investing world and trying to undercut on fees and so on, you’ll need the people. You’ll need the right people to have a successful longterm private equity business. But I think even if you got those people and they all moved to these very successful, highly respected firms you’re talking about, whether it’s Vanguard or BlackRock or any of the others, I think there’s a lot in a private equity franchise which is hard to replicate when you’re talking about the major firms. You have networks of contacts. You have deal track record and reputation. You have operating advisors that assist you when you’ve bought that company to improve it. I don’t think it’s easy to replicate like that. Either we have seen a number of firms open up private equity strategies within firms which are mainly looking at passive investing or if not passive investing, mutual funds, but a different kind of investing, not sort of the [inaudible 00:19:35] illiquid investing.

Sachin Khajuria (19:36):

And there’s been, I think, mixed results of that happening. I’m not sure it’s the biggest concern on the major firms minds that what if a passive investment firm comes in and starts to compete with us? I think the ship has sailed a little bit and I think what it’s more about is can they continue to maintain the psychology of longterm success? The kinds of things we talk about in the book, can they maintain that winning mindset that leaves them to consistently outperform? Are they able to do that? I think that is much more of a question and it’s to do with the culture and the DNA of the individual firms, the bench strength and so on. I think that’s what we should be thinking about as opposed to passive firms coming in and undercutting on fees.

Clay Finck (20:25):

There’s a saying that there are no free lunches in investing. Why do you think that private equity has been able to produce these outsized returns? Is it just a matter of selecting the right manager or how has private equity been able to outperform?

Sachin Khajuria (20:40):

I think two points I’ll mention. First, just like not all public companies do well, not all private equity firms do well. And so my experience in my book is really focused on the firms that are doing really well. And those are the kinds of firms that I’ve seen tremendous success and common traits among the really top deal makers I’ve been very fortunate to work with. They are able to continue to do well, because they’re really good at what they do. And I think what’s common to them are the sort of traits we have in the book and we’ve outlined second.

Sachin Khajuria (21:14):

Second, I would say you’re right. There is absolutely no free lunch. I don’t think it’s some kind of magic that’s being pulled. I think you need to look at the fact that with private investing, you are illiquid, you are to all intents and purposes locked up for a significant period of time. Even if the investments in the portfolio you’ve invested in are not doing great, or even if you suddenly need the money and you’d accept taking a loss, it’s hard to get the money out and you may just not be able to get the money out at all. You may have to wait five years, 10 years, even more. You need to be compensated for that lack of liquidity.

Sachin Khajuria (21:53):

The risk return you’re looking at is, well, we’re not liquid. We’ve got a premium service provider who’s charging, let’s say, a higher fee. So we should be making a better return to compensate for those things. And I think that the major firms, the good firms that I’ve been fortunate to have exposure to, they are able to do that consistently and they’re doing it through the pathway we talked about. They have lots of different ways they can go in and invest. They can carve something out, they can put two companies together, they can do roll-ups, they can take public company private. There’s lots of different pathways. And then they use a lot of resource to improve these companies, and then there are lots of also different ways they can exit. The menu is double sided and it’s pretty long. They’re able to put all this to bear, bring all this to bear and make these returns that compensate investors for being illiquid and justify these more expensive terms. I think in the main, the firms I’ve been exposed to, they do.

Clay Finck (22:55):

You mentioned that the capital is locked up for some period of time, which seems to be one of the drawbacks from a liquidity standpoint.

Sachin Khajuria (23:04):

I don’t think it’s a drawback of achieving higher returns. I think that when you look at your overall portfolio that’s going to hopefully get you where you want be for retirement or whatever your investing goal is, you need to look at, well, I may make this band of outcomes of return in this strategy and it’s very liquid I can get at whatever I want it. And this one, it’s a little bit more difficult to get the money out, but ultimately I could be able to get it out. Let’s say, it’s real estate, you buy some real estate. You can’t necessarily liquidate it tomorrow, but sooner or later, hopefully you can sell it if you need to. And then you have these illiquid strategies where you’re largely locked up for many years. And so you’re just looking at different kinds of investing that have different attributes, but you should be compensated according to those pros and cons.

Sachin Khajuria (23:51):

So I think then going to your question on the pros and cons of private equity, I think number one, as this podcast shows as the premise at the beginning of the show, illustrates not many people know enough about it. It could be a costly decision just to jump in without really doing your homework, because it is a people business, because you really need to understand what’s driving the firms, what’s driving the funds, and who you’re investing with, what their track record is. I think you need to do your homework. And I think it’s probably easier to do that homework in public markets. You just look on the websites, Vanguard or BlackRock, and look up the portfolio managers and you could probably see what their key holdings are actually in many of the cases. It’s easier to do that in public markets than private markets. So I think it’s more incumbent on you to do your homework before you hand money over. That’s just as an individual, that’s how I look at it. And I think it seems pretty obvious, which is you need to know what you’re investing in.

Sachin Khajuria (24:51):

I think you need to be really sure when you’re writing that commitment of, “Okay, I’m going to commit $X to this strategy,” that you really can lock it up. That you’re not going to need to access it within that timeframe. If I was advising a family member who wanted to start small, I’d say that’s the way you do it. You do a lot of homework, you start small, you pick the right firms, pick the right funds and you sort of ease your way into it, which is probably I think to a certain extent what we’re going to see. Which is retail investors will ease into private equity, but it will ultimately become a pretty significant part of their portfolio.

Clay Finck (25:25):

Given all of the complexities that goes into private equity from selecting a manager, to understanding how it all works, what is the primary driver for someone to want to get exposure to this space?

Sachin Khajuria (25:38):

Look at this year. On January 1 or 2 or 3, take your pick. Your public markets portfolio was probably pretty good. It would’ve moved up and down a little bit in the next four weeks. And since then, it has not been interesting in a positive way at all. There may be the odd hedge fund that is doing very well, but for most investors that you’re talking about who are not longterm professional investing experts, the value of their 401(k) or their IRA has basically come down significantly. So what do you do? Do you just accept it’s a lost six months? Or do you say, “Well, to position myself a little bit differently going forward, I should think about whether I diversify into private markets as well as public markets.”

Sachin Khajuria (26:26):

And as I mentioned, some firms right now, I think are going to do extremely well in the macroclimate that we’re seeing because that’s what they’re good at. Pick your ETF, which is going to be a winner in the volatile public markets we’re seeing today. You’re going to struggle to pick that cheap ETF that’s going to be a winner today. You might find one, but certainly the major indices have been difficult. As a result, when you have the S&P down, sort of 15% plus percent, depending on which day you look at it, you probably don’t want that to be a lasting impact on your portfolio. You want to diversify into things that can give you a very good return for an amount of money you’re happy to lock up. That’s sort of the way simplistically I look at it.

Clay Finck (27:10):

Wouldn’t the private equity funds be down as well? I might not be trading five days a week like the public markets, but wouldn’t the valuations of these private deals be down if the public markets are down as well?

Sachin Khajuria (27:21):

I mean, it’s an excellent question. I think, first of all, you have a much longer horizon in private markets because you’re focused on the exit at the end. You will probably read your quarterly evaluation statements if you get them. And you will probably want to ask questions and participate in round tables and discussion groups and all of that, if you have that possibility. But ultimately what matters is less a quarter-to-quarter performance, and more it’s the result after many years when those investments are liquidated and those exits come and the monetizations come. That’s the first point.

Sachin Khajuria (27:56):

Second point, even if those valuation metrics are impacted in private funds by what’s happening in the public markets, and you can imagine there would probably be some of that. You are looking at longer term valuation techniques than just which multiple should I use using the public markets as a benchmark, because you have a private investment you’re looking over the longer term. Then I would say the relevant metric is really to look at less whether quarter to quarter, year up or down 1, 2, 5%, whatever it happens to be on that private investment, it’s more whether your thesis is working out, such that by the end of the whole period when it’s time to sell, you can anticipate whether you’re going to make money or not. That is really, really important.

Clay Finck (28:44):

Yeah, I like that. I think that many people can be swung by Mr. Market’s emotions. Some people need to have that capital locked up so they really can’t sell at in opportune times. It reminds me of how many people have a lot of their net worth locked up in their home. Well, a big reason for that is because it’s a forced savings vehicle because they need a place to live and they’re continually making the payments on the house and they’re generally holding it for the long term. So I really like that point you bring up of having that longterm time horizon. I’m curious, do these private equity deals have a hurdle rate they’re trying to achieve, or what sort of returns are these funds targeting?

Sachin Khajuria (29:25):

It varies on the strategy. I think you have private equity strategies that are taking a little bit more risk. Maybe they’re buying a company out of bankruptcy, maybe they’re buying debt and converting that to equity. They’re probably taking on more risk and commensurately they’d expect a higher return. And that would probably mean… To me, that typically means they should be making more like in the 30s plus rather than just a 20%, if they’re taking on more risk than a more routine transaction. That’s the very big generalization. There’ll be plenty of deals which are perfectly okay at the 20s in terms of internal rate return, IRR, and some which actually you should be behaving even higher. So I’m not sure you really target a particular number. You just look at the risk return of the situation. But I mean, if the risk is a little bit more than, you should be looking to be compensated for that.

Sachin Khajuria (30:13):

And then you have more classic leverage buyouts where… I mean, everyone will have a different view on this, but my view is you should be making in the mid-20s in returns. If somebody brings a buyout to me or a buyout fund, then they’re like, “Well, we’re going to make 15%.” I sort of feel for the risk you’re taking on that seems low. You should be in the mid-20s. And so that is the sort of in the order of magnitude, the ballpark figure that I think about. Something in the mid-20s.

Sachin Khajuria (30:40):

And then you have strategies where actually the instrument you’re going in is not common equity or some form of preferred equity. The instrument you’re going in has specific clauses and structures that give you downside protection so even if the business starts to get worse, you don’t get wiped out. And those instruments, they’re typically called hybrid instruments or hybrid capital or tactical opportunities or so on, they tend to have a little bit of the upside taken away because of the way they’re structured, but in return, it’s very, very hard to lose money. Your IRR… You’re not going to make zero. You might make in the 10 to 15% range there or thereabouts. It depends on which strategy you’re looking at, but I think those are sort of ballpark numbers which have served me well.

Clay Finck (31:27):

You mentioned earlier that you expect the private equity space to grow from 12 trillion to 20 trillion. What do you see coming out of the industry over the next decade and how will that change the overall economy?

Sachin Khajuria (31:39):

I think that first we’ll see more deals and bigger deals. We’ll see more funds sized at 20 billion or more each. And that means we’ll probably see larger targets. We’ll start to see really big companies coming under the slide rule of private equity, whereas before they’re thought to be special cases and private equity doesn’t go for such big targets. I think we will see that.

Sachin Khajuria (32:06):

And I think second, what we’re going to see is private equity continuing to innovate and reform by looking at this retail investment angle to bring in capital, starting with the mass affluent, then ultimately looking to give opportunity to the middle class to invest. Everyone has the chance to put money to work. Those are the two big things I see.

Sachin Khajuria (32:29):

I think related to that, I think the intelligence and data coming out of private equity deals will start to really be a huge edge for private equity firms over other investment strategies. Because remember, they’re investing across the economy and lots of different kinds of companies, they get flash reports, macro indicators, sentiment surveys, and this data and intelligence I think will further and further the edge of private equity firms. So these are the three big things I see coming out. And what that means is more companies being invested in or lent to, and more companies being transformed with private capital for those institutional investors, pension funds retirement systems and so on, but now also for retail investors.

Clay Finck (33:18):

You also mentioned earlier that some funds are targeting returns in excess of 20%. And it almost sounds too good to be true. What’s the catch I might not be seeing, or is it just a matter of finding that right manager to actually hit those returns?

Sachin Khajuria (33:34):

I think you have funds which target different returns as opposed to firms. The same firm could have an investment strategy that targets somewhere in the teens, where you have more downside protection but you lose some upside. That’s probably quite a good risk return by the way, because the chance of losing money is very low, even though you’re not looking to shoot the lights out. And that same firm can have another strategy that is just doing kind of ordinary leverage buyouts and looking to make returns in the 20s, something like that. I think that’s the way I would look at it.

Sachin Khajuria (34:03):

What are you missing? I think you’re not missing anything. I think the thing to emphasize is what are you comparing it against? If you are comparing it against buying an apartment or a home for seven years, let’s say, hold, and making 50% plus or even 100% on your money, well, you could probably do that if the market conditions allow. You buy your house, you borrow, you sell it after seven years or whatever, and you double your money. I mean, that’s possible if the market conditions allow and maybe you’ve maintained the house very well, maybe you’ve done some little bit of surgery inside the house to improve the layout or some of the rooms and so on and so forth.

Sachin Khajuria (34:42):

And so what are you comparing it to? If you’re comparing it to the public markets, well, there going to be years when the public markets just do better because they’re just on a tear. And then they’re going to be years like this year where they’re looking a lot more difficult. The thing to look for is, am I getting adequately compensated for the risks that I’m taking? And if one of the risks you’re taking is that it is an illiquid investment, you cannot pull the money out, you should be getting compensated for it.

Sachin Khajuria (35:08):

And so when I look at these average annual returns, like 20% a year, 25% a year, et cetera, for buyout funds, maybe higher, is the public market giving you that every year for five years in a row? No. You’re going to have years where it does much better, and you’re going to have years that do worse. And so you’re getting a relatively stable and consistent return as part of your portfolio. That’s the way I would look at it.

Clay Finck (35:36):

I’d like to ask you a little bit about your new book that is being released this month in June 2022. It’s called Two and Twenty. What did you hope to achieve with writing a book about private equity?

Sachin Khajuria (35:48):

I think that we are past the tipping point where private equity should only really be thought about, talked about when it comes to Wall Street. We mentioned that at the top of the interview. And so I would like more people to try to understand this industry. I think it’s an industry that does a great job on the whole, and I think that more people will have the chance to invest in it. I hope they do so after educating themselves and being better informed. Because it’s a people business, what this book is trying to do is get to the longterm success mindset. What is that winning mindset that allows some firms and funds to consistently outperform their competitors and the public markets? And what are the traits of some of those very successful investors?

Sachin Khajuria (36:35):

And so what we’re trying to do is look under the hood of private markets, specifically private equity, to examine how some of these terrific deal makers think, act, and organize themselves to keep winning. And what I would hope from the book is that more people learn about the influence and importance of private equity, the impact it has when it invests in our economy, how it transforms companies, it makes the change, and what it means for the workers on those enterprises. And so I think that understanding starts with a basic understanding of what private equity does, how it functions and how the people who do it actually do the deals behind the scenes. And so that is really the motivation behind the book and why I’m seeking…

Sachin Khajuria (37:24):

If you look at the writing style, it’s not technical. It’s written in a very everyday writing style, even has a glossary at the back I think of a dozen pages or more. Because we really want it to be accessible to everyone, to be able to understand, “Okay, I’m thinking of going in this investment strategy, I’m a retail investor.” Or, “I’m a smaller institutional investor. We’re thinking whether it makes sense for a company. How does it really work behind the scenes? What are these people like? What’s going to happen after I hand over the check?” All those questions. Hopefully this book is one part of improving people’s understanding

Clay Finck (37:59):

Sachin, thank you so much for joining me today. I really, really appreciate you sharing your time with our audience. I definitely learned a lot about private equity during this conversation, and I bet the audience will as well. Before we close out the episode, where can the audience go to connect with you and learn more about your new book?

Sachin Khajuria (38:18):

Well, thank you. You’ll be able to buy a copy of the book everywhere you normally buy books. It’s online at Penguin Random House’s own website or links to retailers: Amazon, Barnes & Noble, and so on. And it should be available everywhere that good books are sold. To connect with me, we do have a book website which is coming up that’ll have a contact page. And of course, there is the family office website, which people are happy to click the contact button on. That’s achilleslp.com. And of course, I’m very hopeful that if you continue to follow this sector Clay, and you’d like to cover other topics, I’d be very happy to be back. That would be another way that folks would be able to connect with both of us together on this topic. I’d be delighted to do that.

Clay Finck (39:03):

Awesome. I really appreciate that. I’ll be sure to link all of that in the show notes for those in the audience who are interested in checking those out. Thanks, Sachin.

Sachin Khajuria (39:12):

Thanks very much. It’s been a privilege. Take care.

Clay Finck (39:14):

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Outro (39:51):

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Outro (40:12):

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