Episode 90: John Connaughton, Chairman, Bain Capital - Helping Build Bain Capital into a $225 Billion Private Equity Firm

John Connaughton is chair of Bain Capital, the Boston-based private equity firm with roughly $225 billion in assets under management.  Discussion begins with John’s childhood in Baltimore and the pace set by his Irish emigre parents.  College at UVA and business school at Harvard followed.  John joined Bain in 1989, an early employee in the private equity effort that spun out of the Bain & Co. management consulting firm.   He and the hosts take a fast-paced tour through early days at Bain Capital, the mindset of Mitt Romney and other leaders, his ascent in the practice, John’s own tenure in leadership, and Bain’s determination to remain private even as its peers entered the public market. One constant theme:  the pursuit of extraordinary returns on every deal.  

Transcript

Copy

0:00

Andy, so we just wrapped up our conversation with John Connaughton, chairman of Bain Capital. What'd you think? I thought it was a great discussion. Leader in our industry has overcome the, uh, handicap of friendship with you. It was good discussion. Big handicap. Yep. Um, we were giving him a little bit of heat that he couldn't find the middle market with, uh, detailed directions, but I loved hearing about early days Bain Capital joining in the '80s, what it was like working with Mitt Romney, how the business has scaled. I mean, I, I think that, I think it's appointment listening for anybody that has listened to a podcast of ours in the past. I also thought he made one seminal point. The people who we work with at our end of the middle market look at the mega firms like Bain and kind of pay them respect, but also kind of dismiss them a little by saying,"Well, they're asset gatherers. They're no longer in the business of being preoccupied with alpha, with above-market return." But he made it very clear that first, that is still Bain's DNA. And second, it's not an accident that they remain private and that not having the ability to play off of the public market has kept that flame on their backs. And I thought that was really interesting. I would agree. I would agree. Well, fun conversation. Hope you enjoy today's episode with John Connaughton. John Connaughton, chairman of Bain Capital. Excited to have you aboard here. How are we? We're doing well, Charlie. Andy, thank you for having me on. Yeah, welcome. We're going to refer to you as JC, which not the religious figure, but JC as in John Connaughton. And so to level set, even friend, like, I don't, not sure I consider a friend, I'm more of an associate, but I know you as JC and I think most of your work colleagues and friends do refer to you as that. So that's, but we'll, we'll, we'll go from there. Sounds good. So this, this small fledgling private equity firm, that some may have heard of, we will spend some time unpacking. You've got a hell of a story to tell and, and, and have been there for more than a year or two. So an interesting vantage point along the way. But before we talk about you joining Bain Capital back in 1989, a Ute, and Baltimore, right? Did I pronounce that right, Marilyn? Balmer, something like that. Get the crabs. What sort of trouble did young John Connaughton get into in his, uh, misspent youth? Well, you know, I, I was, uh, youngest of 5. My parents, uh, came over from Ireland in '58, um, and, uh, you know, my, my siblings plowed a lot of ground, uh, which gave me a lot of flexibility to plow even more ground, so I wasn't the, uh, sort of the, the number one child. My brother was, was that, and my sister was that. But, but I, you know, I, uh, I did have my own unique, unique positioning in that I was very, very intrigued by music and, uh, you know, trying to do haunted houses and trying to sell door-to-door light bulbs. And so I had a very different, uh, perhaps experience than my siblings. Did you grow up in the city of Baltimore? No, we grew up outside. My father was a professor at Hopkins, uh, you know, uh, for 35 years. Uh, so I grew up in Lutherville, Maryland. Interesting. So I'm curious, what led him as, as an academic in Ireland, what led your folks to come here in the late '50s? Opportunity. I mean, I think that, um, you know, relative to the academic medical institutions that you know, he aspired to participate as a professor in. I think he had offers at Georgetown and Johns Hopkins and ultimately was really excited about psychiatry, pediatric psychiatry. So you can make jokes about the child of a psychiatrist, but my father really was passionate about that, and his whole career was community health in the most difficult, challenging parts of Baltimore City. And you couldn't really do that kind of work in Ireland. They didn't have the kinds of commitment to psychiatry as a true disease state back in the '50s. Did your mom work, JC? You know, it's funny. My mom was— there was a bunch of girls in my mom's family. She was the youngest of 6. And her father was mayor of Carrick-on-Shannon. And he made all of his daughters become accountants., at UCD, and they were the only women that became accountants. Um, anyway, she went on to be, yeah, do that out of college, but then had a lot of kids and, you know, became a music teacher and a school teacher. So I am the product of teachers. When you were young, was education a big deal? Was it hammered into you, or as the youngest of 5, were you an afterthought and they were like, we're fatigued, you figure it out? Yeah. Yeah. Those are both can be true, I think. Um, they definitely wanted all of us to get, you know, post-grad degrees. So my siblings all had either doctorates or master's or both. Um, and so we're a highly educated group of 5. Yeah. Um, and that was definitely part of my father's and mother's, uh, passion for their kids is just to go off and do different things. So we, when we've had people that were, you know, lawyers and, you know, senior executives and pharmaceuticals and, and doctors, um,, and people like me on the dark side of investing. So we've had a fairly variety in terms of where we all ended up, but all was really driven through academics. JC, so your academic path was UEA and then you went to Harvard Business School. When did you first have the intuition about finance that just beyond being a highly educated professional, that this is something I could be really good at? Well, it's interesting 'cause one of the largest battles I had with my father was he wanted us all to go to Johns Hopkins. At the time as a professor, you didn't make much as a professor, certainly not a psychiatry professor, but the good news is you got your tuition free if you went to Hopkins. And so if you have 5 kids, getting tuition free is a pretty good benefit. So my brother went there and my sister went there. And then, you know, I, I'm up there for, for consideration of where I go. And I got into Hopkins, um, and I got into Tulane and Emory, and I got waitlisted at UVA, but that's where I really wanted to go. Um, uh, because they had a business school and, and because that business school was one of the best, you know, I was committed to that. But, um, it took a lot of time and pressure of my mom calling the admissions officers over the course of the summer of my my year of matriculation that I finally got in in August. And then the rest of the story is kind of my business career path as I really excitedly joined the McIntyre School at UVA. And you enjoyed your time in Charlottesville, I would imagine, right? Well, that was the other reason my father didn't want me to go to UVA. There was a little thing called Easters, and, you know, it was at least in his mind, not in mine, you know, a, um, a party school. But, um, but it had great— it's great, great environment, uh, great academic environment, great social environment for sure, great sports. So I'd love my time there. So JC, when you were trying to figure out what the hell you were going to do after undergrad, what was the kind of the decision-making process? What were the things you were considering and where'd you end up? Well, you know, I didn't have a great, a great roadmap for what were the typical paths of people coming out of business schools or undergrad business schools. So I heard a lot about this investment banking thing. I'd never really spent much time in New York. Heard a little bit about this consulting thing, although that didn't make much sense that you could come out of college and be a consultant. And so I interviewed all over the map. I actually interviewed for a risk arbitrage firm, investment banking, both First Boston and believe it or not, Drexel. Got an offer from Shearson Lehman and then ultimately was teased by somebody in Boston to come and interview at Bain Company. And that interview kind of was the real pivot point because it was kind of crazy to think about a 22-year-old providing analytical work and advice to Fortune 500 companies. So I rejected the other offers and joined Bain right out of college in 1987. And who were some of the characters that started Bain Capital? You were at Bain Co. at that time, correct? Yeah. One of my real mentors over my entire career, Paul Edgerly, was running the analyst program at Bain. So he's somebody who Ultimately, before even I went to Bain Capital, joined Bain Capital, but he was a really critical part of giving me the window into what's it like over across the hall at Bain Capital. Did you make that shift before you went to business school or after? Before. Because I was thinking about investment banking or consulting, this notion of how do I actually reconcile why I would both or maybe either of those. And I got to consulting and the first thing I did was I had an assignment working for Bain Capital. So, one of our companies, Veco Gray, which was an oilfield equipment company, was an investment from Bain Capital. And Mitt Romney was on the board and Paul Edgley was the portfolio value creation expert. And so, I was working as one of the consultants for the company, trying to basically turn it around. It was losing $50 million. I got to go to Aberdeen, Scotland, Houston, Texas, and Singapore. It was actually a lot of fun, but that's how I really got my first exposure to both what does it mean to really put your money where your mouth is, not just give advice, but turn something around and make some money. And Bain Capital made a lot of money on that. Um, and I had some great relationships that I developed through that. So to take us into the room, I mean, Mitt Romney, I said to you before, has always struck me as a singularly competent individual going back several decades, you know, Mitt, and I guess Paul also, how did Mitt Romney think about a pitch, a management presentation? How did you guys suit up for, for battle? What was it like going in as Bain Capital all those years ago? Back in the mid-'80s, there was McKinsey, there was Boston Consulting Group, and there was Bain. Bain was the most rebellious of all the different consulting firms because they had the audacity to say, not only are we going to give you advice, but we're going to get in there and we're going to implement it and we're going to actually be your partners to drive change. And they only worked with one client in one industry and they looked at the equity stock price of those clients as a, as a metric for why we're adding value. By the way, it was a great business model because you were all over these companies. And in fact, they got in some trouble with Guinness and some other companies by being too involved. But that notion of what Mitt was pitching and Josh and Bob White and Paul and all these folks were like, we're going to partner with you. We're going to put a lot of our own capital beside you and we're going to help change your trajectory of your business. Not just achieve a good return, but achieve an outstanding return. One of the major KPIs we always look for, I have a plaque in my office here, which is we want to make 10 times our money in 5 years. And we have a list of all these deals that we've made 10 times our money in 5 years over the course of the first 10 years. And it was just a really interesting time to make change happen, but also make investment upsides for us and our management teams. That mentality sounds like it started at Bain Co, but it was that mentality that the guys decided that that was going to be their mantra when they started Bain Capital. Yeah. I mean, I think at the time you had guys like John Halpern and Steve Schaubert, you know, who were incredible consultants. And I think Mitt really wanted his own lane, which is, we'll come back to the story later about how the business was built. But, you know, in effect, Bill Bain was giving Mitt his lane. Like if we believe our rhetoric around providing advice and helping our teams, why not instead of selling it for a fee, we'll buy profits at a discount, effectively buying sort of the upside that we can make happen. And so that ethos was really what differentiated us in the business. We were not financiers. We had not had any investment bankers in our team. It was all just people who felt like they could implement Well, have insight, but then implement that change. And that was the whole ethos of why Bain Capital was different then, and frankly, to some extent, continues as the biggest differentiator today. Chronologically, when did Bain Capital officially hang its shingle? And was it MIT that started it?'Cause I think that's the case, correct? That's correct. So MIT started in 1985. Yeah. So we just celebrated our 40th anniversary last year. Um, and, uh, you know, and he was, you know, he was there all the way through, um, 1999 when he left to, to run the Olympics. Um, so he hired me, um, in, in 1989. So if Mitt Romney's like 80 years old now, so he's plus or minus 40 then, what was 40-year-old Mitt Romney like? You know, first of all, uh, Mitt has a sense of humor, you know, you know, it, it, it, which I think most people don't appreciate. Um, And it never really revealed itself except for perhaps in some odd ways in the campaign, but he actually is a pretty funny person. But he's also the guy that asks the incredible questions that you should have been asking yourself. So one of his secret sauces was he empowered people. I mean, one of the interesting things, he never consolidated all the economics as a founder. He really had this broad team. With shared economics, like a true partnership. But he also allowed you to go out and find your deals and advocate for them. And ultimately, he asked a lot of tough questions. And frankly, to this day, this investment committee process, which sounds sometimes a little bit tough for our younger people, it all comes back to, we're not trying to judge you. We're just trying to make sure that you're answering the questions that you should have been asking yourself. And if you don't have those answers. Got to go find them out. But once you do and once you come back with conviction, he was very empowering. He lets you effectively live or die by your own conviction. And I think that notion of empowerment, but also asking the right questions and making sure that you had your own critical eye were core to my development, but also the development of many of the great investors at Bain Capital. JC, I want to ask about the comment that you made about 10x in 5 years. I mean, we live in a world, you know, certainly in, you know, what you would call the lower middle market where Charlie and I are active, where there are a lot of private equity groups that go in and tell investors that they're targeting a 3x multiple on invested capital. 10x is obviously, that's more than than 3x. And, you know, understanding that you don't hit that benchmark every time out, I'm curious what you knew then and what you think now about those super high returns. I mean, as you look at the various levers— financial engineering, operational improvement, management acquisitions— can you generalize about the subset of investments that achieve those stratospheric returns? Yeah. I think ultimately, it does come back to earnings growth trajectory that really drives it. I mean, certainly, multiple expansion has been the luxury of all of our careers over the course of the last 40 years. But I do think the notion of unlocking earnings growth— I mean, oftentimes, if you go back to my consulting heritage, there's this view of like, what is your market position and what earnings do you have relative to that position? And is it the right normative set of earnings for that competitive position? That's a very basic concept that goes back to Michael Porter and others. But at the end of the day, if you see that you're way underperforming that competitive position, the ability to then get to the right margin or the right return on net assets, and then you'll lever that, particularly in the old days when you could lever that 9 to 1, that can yield huge returns. I mean, so Accuride was a great example, a truck wheel company that we bought, had $5 million of equity underneath $100 million of debt. But we changed the trajectory of the earnings to expand its margins and grow the business. And we made 25 times our money. So a little easier when you have that leverage. But the key unlock was that combined with a real change in in the earnings. JC, you were saying that one of the things that Mitt did well was like really kind of bring people along and allow people to think, you know, in my words, not yours, think like owners invest in the deals. Young John Connaughton in 1989, was, were, were you able to invest or did they share carry or how, how did that all work as a young buck? Because I think in '89 it would, how many people were around the table at that time too? Yeah, when I joined there were 11 people. So I was the 11th. I remember telling Josh Beckenstein that I couldn't conceive of the idea that I could be a partner. So there was really not going to be that much room for me. And I felt like it was pretty top-heavy. There was like 5 partners and 6 non-partners. And I was like, wait a minute, this like makes no sense. You got like half partners. And I mean, this is terrible. But Josh, to his credit, he said, look, you are one day going to be my partner, my true partner. And of course, we did achieve that ambition. But it was a co-investment culture, Charlie. I mean, we had guys, including myself, taking out credit cards to actually— and by the way, this is high APR time, by the way, late '80s. The rates were not low. And so, we had people taking out credit card loans to generate the 30% to 50% returns that we were going to get on our co-investment. So, we did not get carry until post-business school. But we did put a lot of our own personal capital into these deals. I mean, Brookstone was an 8-bagger that I put money into. Gartner Group, which I wish I'd put more money into, was a 17x our money deal. And so people were scrappy and trying to figure out ways to get that upside. And that's still the case today. I mean, 16% of every dollar is our own capital. 1/6. Yeah. That's remarkable. Talk about a little bit about that deal dynamic. When you think about, you know, Gartner Group, when you were, were you one of one for the suitors? Was that a completely negotiated transaction or was it, uh, was it competitive? Yeah, there's a guy named Gideon Gartner. Uh, people sometimes forget the origin stories of these are always founders that start these things, but he was owned by Saatchi and Saatchi. Um, and it was a very complicated Carvalho to get him and others to agree to be spun out of Saatchi Saatchi. And we were a really good suitor because, you know, given our consulting background, you know, they really saw us as somebody that knew that kind of business that, you know, that we were going to be buying there. So it was a terrific deal. I wish I had more of it. You know, I actually had a lot of it. This became the foundation for my My down payment on my house, Stephanie, my wife, beat me to it. I couldn't reinvest it fast enough, but we made 17 times. I put $3,000 into it. And so at that time, 17 times $3,000 was enough to put a down payment on a home. I thought I had $10,000, but I think it got diverted to another colleague who had greater favor from MIT. But it still was great, but it gave me a taste. And certainly that taste early on, you know, to get kind of co-investment upside. You know, when you talk about what drives the ethos of our people, or certainly, you know, the partnership, it is that upside from the investments. It's funny, on the front end, we were giving you a little bit of a hard time that you couldn't find the middle market with very detailed directions in a map, but it very much appears as though that was kind of where you were blazing a trail back in the late '80s. I have another Porter— I don't know how we refer to Michael Porter— portarian, Porter-esque question for you, just about the two businesses that you mentioned, Gartner and Brookstone. What have you learned about— this is a question about industry mix and about kind of the duration of competitive advantage where the trajectory of a company that had a foothold in marketing and business analytics was long. And over the decades, we've seen retail concepts that were very much of the moment and they tend to cycle out. Has your view of that changed over the years? I think you're making a really interesting point. I mean, you know, The thing that we value the most, particularly given our own capital is such a large portion of what we invest, is those long-term compounders. Probably one of our most challenging decisions to make as an investor was to exit Gardner, honestly. We probably could have made, I think if we even held on for just a few more years, 30 or 40 times our money. And so when you find those durable compounders, I mean, I think that's the challenge of our industry. It's like, hold on to them. And we've done better than most. I think our average duration is usually a year, maybe even 2 years longer than our competitive set, which is a long time actually when you think about it on average. But I think that, you know, there are concepts. Brookstone was interesting because it was actually a— it was an— it was an— it was a deal that Greylock had done, which they had never done a buyout, um, and they had put leverage on it. So it was a new thing for them, but it then got into— it did create a challenge over time because they had expanded and, and the balance sheet didn't fit, um, you know, the particular need for the company to build inventory. And, you know, it's a huge seasonal business, um, and ultimately expand. So we put capital in to deliver the business and restructure it, and, um, And then ultimately we expanded it rapidly and we went public and we made, you know, a significant multiple. But yeah, those concepts, particularly retail and restaurants, oftentimes do have, you know, don't have the compounding element over decades like Gardner did. Love to dive a little bit deeper in terms of over the years as Bain Capital grew over the last, you know, 40 years or so, when you're looking at a business? Is there a lens that you think you and your partners really share that you use when you're analyzing new investments? Yeah, I mean, it comes back to this notion of unrealized potential and then putting muscle behind that realization. So at the end of the day, we always ask ourselves the Admiral Stockdale question, who am I and why am I here? And the answer to that question is you gotta have a reason why you're seeing something that other people are not seeing. And if we have a view of like there's a series of inflections that we identify and that's why we're not good at these steady-as-you-go businesses, really highly well-managed businesses, we're generally looking at things that need a little bit of impact to them to generate that inflection. And so, identifying that upfront and then ultimately having a plan and people that we put into making that work to realize that potential. That's sort of like those are the two yin and yang of our business. So, we're not as good at just being pure asset selectors. If we're just going with the hot trend, we'll overpay. I think most people do. We need to find that unrealized opportunity. And so, that means we're putting in management, we're changing management, we're we're putting in capital to expand the business, we're doing M&A, we try to take an operator lens to making it happen, not just an asset selection lens. J.C., this might be a good time for you to give us the current dimensions of Bain Capital, assets under management, number of vehicles. Headcount, geography. So we have 21 offices, 2,000 people, 200 partners,$225 billion of assets under management. We don't like to say AUM, we like to say profits under management because we're trying to focus on performance. By the way, when we started out, because we couldn't get other people's capital, we didn't know much about Wall Street. We were doing growth equity and venture, then we got into buyouts and then we expanded our buyout platform. Um, but now we have the buyout business. You would call it the late-stage buyout business, the large to mega business. Um, and that's been our core strategy. Um, but we also have on top of that, we have credit. Um, we have private credit, special situations, uh, venture capital. Um, you know, we have real estate. Um, we have a couple specialty businesses, a few specialty businesses, one in life sciences, uh, which is also inflection capital there. We have a tech Transformation Fund, which is more like you would think of as a mid-market tech growth equity fund. And we have an insurance fund and we have a, believe it or not, a crypto fund. So we have a lot of strategies. We're deep in Asia, one of the largest in Asia. We have a huge Japanese franchise inside Asia, which has been terrific. We've been in Europe for 30 years. We've been in in Asia for 20%, and obviously overall for 40%. So that's the basic parameter. What are the parameters in size for the core buyout fund? Yeah, it's a pretty wide range. I mean, obviously, the way we structure our private equity business, at least as it relates to late stage, is we have a US fund, a Europe fund, and an Asia fund. And so those funds can be Right now, our current fund is total footings of 14 in the US. So we need to have a fairly scaled check to really make it meaningful inside a $14 billion vehicle. So that generally starts with probably 300 and gets up to as high as 1.5 billion. When you think about your competition, what are you guys bringing to the table? What is the pitch? What is the secret sauce at Bain Capital that makes you different than the other larger players out there? Well, it goes back to the beginning and frankly, in some ways we've come full circle. In the early days, we were all operators, advisors, dealmakers, and governors of the businesses, and then ultimately exited. We were all that was in one body, right? So, And then over time, you know, we built larger and larger dedicated resources to driving value inside the companies. And then we verticalized to make ourselves really deep inside the verticals we're in. But I think the biggest difference is that it's all integrated. Like a lot of people have portfolio value creation teams, they throw it over the wall and they do projects, right? But our team is like incredibly integrated all the way from sourcing all the way to exit. Working side by side. So it's almost like it was the beginning where it was just one person. It is like one team that's really highly integrated. And we don't have this like, "Oh, you're the dealmaker and you're the portfolio value creator." We're all investors. And all of that results in, I think, a much better asset selection lens to know where we think we can make a differentiated impact versus our competitive set. I'm curious, in the main buyout vehicle, how much of the capital is going to entrepreneurially owned or individually owned businesses as opposed to properties that are already in private equity hands? And given your traditional orientation, how do you think about what Bain will bring to those two different templates? Yeah, I mean, great question. I think that, I don't know what the statistics are at this moment in time, but In general, the market has moved to greater than half are buyouts from other buyout people. I think ours is inverted. I think we have a highly disproportionate amount of businesses that we've bought either with founders or from founders or from strategics. So sort of the bread and butter of our investment portfolio really is this notion of founders and carve-outs. Having said that, we do buy from other sponsors. Oftentimes sponsors do not have the capacity to either provide the capital at the scale that we can provide, or they don't have the value creation resources. So the ability to apply that value creation to a mid-market deal that we buy and then create inflection, even if it's owned by another sponsor, I think we do that all the time. What's a value creator? What do you mean, operating partner or? Yeah, it's somebody who quarterbacks. We call it two in the box. We have a deal partner and we have a portfolio partner and they have equal weight in the boardroom. They have equal weight in the minds of the management team. And ultimately, we are trying to have that integrated view of what we're trying to accomplish, whether it be cost reduction or margin expansion or product expansion or M&A. So usually it's a roadmap that has a shorter timeframe and then a longer-term blueprint. How do you handicap the management brought in by the prior private equity sponsor on those deals, right? Where the entrepreneur is gone, they found somebody in the industry who was successful, right? EBITDA of the business ran up from$20 million to 60 or 80 million. So now this CEO is looking for his next investor and the prior sponsor just, they became like a money source. How do you think about whether that individual has what it takes to bring the business to yet the next level under you versus all of the other talent that you have access to within Bain? I mean, you all know this a little bit because we're all in the business, no matter what size it is, is you've got to get into the, the heart, heart, hearts and minds of your, your teams you're backing. But ultimately, the, the gold of what we find, particularly in sponsor deals that we buy from, you know, with an existing management team, is they have a view of what they wanted to do that the prior sponsor limited their capacity to go after. And I know that sounds Like, really? Does that really happen? It happens all the time, particularly if you have an asset that can be helpful to a mid-market sponsor that ultimately is looking to fundraise or frankly is worried that they don't have enough capital in their funds to really go to the next level. And so what we try to find is management teams to say, look, here's the real plan I have. This is the plan we were on, but how do I inflect it? When you think about value creation, you know, split between, call it operational improvement and financial engineering, have your views and the firm's views evolved over time? No, I think we've just gotten a lot better at it. I mean, one thing we haven't lost, I know we talk about 10 times, although we have made 10 times our money on large checks in the last 5 years, by the way, but we don't try to see that that's going to happen a lot. But we still are looking for slugging percentage. I mean, our industry, as you know, has gotten into this churning of assets. As soon as you make 2 to 3 times your money, you sell it out and you have an average out at the slower end of the multiple range. Our view is we want to have slugging percentage. We want to have half our fund in deals that can make 3 to 5 times our money. And in order to do that, you have to do a lot of deals, not just half the deals. You have to look at all of them through that same prism. So, the notion of creating a portfolio of asymmetric upside bets that can make that, you're not going to do it every time, but if you do it, you're going to generate that 3x+ multiple of money fund, even at scale. The thing our industry does is they don't actually look for that kind of upside. They generally try to fake, see risk-return bets that can make 2 to 3 at scale. Mid-market may be different, but you can't get a 3 to 5 times multiple money unless it's in a fan, unless it's in the potential opportunity set for that investment. JC, I think you're pointing to the central apprehension that a lot of lower middle market sponsors feel with their successful investments, that getting that multiple return gets to be a matter of raw dollars. The, the amount of incremental business that you need to find to boost EBITDA from 10 to 15 is mathematically less than what, you know, what it takes to go from 30 to 60, 30 to 80, whatever. What is ingrained in, uh, the Bain culture that has to do not just with profit improvement, but with material profit improvement. Yeah. And these are things that I value greatly. So I want to enter into this articulation with knowing that you don't know our values and know our purpose, but literally these are really important things for our culture. And our purpose we articulate as commitment to lasting impact. It's a whole reason why Bain Company existed when they spun out of BCG is they want to make big impact on large enterprise. What are the elements underneath that? It's like challenging conventional thinking. Like if everybody's saying the same thing, we're not in the right neighborhood. We have a unique advantage of attracting people who are consultants to our firm because they don't want to work for another big multi-strat company that's full of investment bankers. They don't feel like they're their assets, their capabilities will be valued as highly at those firms because they know that that is not who are the people running the firm. They're different kinds of folk. They're focused on dealmaking. They're focused on financial engineering. They're not focused on this impact thing. But if they come to our firm, they're like, "Okay, wait a minute. Those are my people. Those are people that really want to make an impact, not just live with the status quo of a trajectory of a company." They want to change it. And so I— that, you know, sometimes that gets us into trouble, by the way. Um, sometimes we undertake transformations that are really hard. And, you know, I think Toys R Us is a good example of that, man. We tried really, really, really hard on that, and man, it was difficult. When you have one— a business that's open one month a year for business, um, even if you put Babies R Us right next to it, and even if you try to operate the hell out of it, If you have internet disruption and a challenging labor environment and a challenging importation of goods market, I mean, it's really hard. We tried for 10 years. So it gets us in trouble sometimes, but in general, we've had real success at transformation. What do you think most investors underestimate or get wrong when you're thinking about scaling and growing an organization like you have? Well, one thing that we haven't talked about, but I think is core to how we've developed, both in terms of product expansion, but also scale, is that we've done it a lot organically. I mean, really, when I started in '89, the people around the table that were my generation were the people that ultimately left private equity to start venture. To start our hedge fund, to start Europe, to start Asia, to start our credit business. And so one of the things that I think people get wrong all the time is like, hey, I want to be in a new product or I want to get bigger. I'm going to go hire a bunch of people laterally. They have no experience at the firm, have no understanding of our culture and the approach that we take. I think the way we've done it has generally been to make sure that anybody that's going to lead a new business or a new geography has a long history with the firm. And so when you look at each of our businesses, and that's true, by the way, of our life sciences business, our Double Impact business, you know, all these businesses effectively have been started with, you know, people who know our culture and who have been deeply ingrained and experienced in it. And then we put them in. Most of our competitors say, hey, I want to raise a fund and I'll hire a team and bring them all in laterally. And then it's like they're just not the same topography of really what ultimately that firm was about. So I think that causes people to fail. I think the other thing on top of that is by having all these people organically placed throughout our platform that know each other, like I'm a dinosaur, right? So 38 years almost, but the guy that runs our Asia business for 25 years, the guy who runs our global private equity business, 28 years, 30 years even. So all these people, we have personal relationships that go back decades. And so when we're trying to collaborate on something across a platform, across a geography, I mean, it's a lot easier. You're listening to Middle Market Musings brought to you by New Heritage Capital and Greenberg Variations Capital. JC, a lot of your competition have gone public. Bain Capital has not. Why? There's been one question that has been asked more often than any other of me, in the last 15 years since that one. And of course, I always— whenever I get asked that, particularly by the press, I always say, well, do you understand the irony of your statement? I think our whole reason that we live and die and have succeeded have been because we think being private is a better way to structure a firm to benefit from a long-term orientation. So why would we want to go public? And the truth is, there are lots of good reasons to go. Public for certain of our competitors. I think our whole reason for being has been to create the best maximization of investment upside for a platform of scale. So we're not against being scale. We're not against the idea of new businesses. But we find it's an advantage of what we do to be private. We've been able to trade off fees for more of the upside and carry. We are a big believer in our balance sheet that goes to invest inside our, our mandates, but we want to have the partners own that balance sheet, and we want to be aligned with our investors. We don't want to chase a public shareholder that's looking for you to have just a fee aggregation growth model because we don't think that's aligned with our, our investors who are not looking for public shareholder returns from us. They're looking for returns from their limited partner interests. And so this whole notion of having to go public, you know, does not seem to in any way get in the way of our success. In fact, if anything, over time, as being the largest private multistrat, we're thinking that it affords us quite a bit of advantage. How do you think about that from a governance standpoint? And what I have in mind in asking that is that I guess one of the stories of our past 30 years encompassing our careers, the displacement of public equity by private equity, right? And, you know, what did people believe 35 years ago? That public equity had these governance safeguards and incentives based on public shareholders, public accounting, brokerage coverage, right? And by the early years of the century, it was pretty clear that was a model with leakage, to say the least. Your whole industry has been fueled in part by this recognition that private investors and private accountability is a more reliable engine of growth. You only need to run your own business. You don't need to worry about the other guys. But as you look at the investment companies that have gone public, do you feel like they have been able to maintain the singular focus that came out of the private equity industry, or do you worry that they're diverted by that other stuff? Well, I mean, I think, you know, it's an interesting question because I, I have a great deal of respect for my my, my competitive set. But, but I do think that they are trying to derive, uh, opportunity for, you know, for their executives, their teams, their founders on two fronts. One is they're trying to still drive alpha. Um, and by the way, scale is an advantage. You know, I, I will, I will say that for us it's an advantage and it's for them an advantage. Um, but I, I don't think that they're trying to optimize returns, um, sacrificing scale. They, they definitely are pursuing as much scale as possible, and if that results in a degree of degradation of return— not, not bad returns, just not as good— um, they're willing to make that trade-off because they get paid a second way, which is in the appreciation of their public stock price. So, so that That merry-go-round for a while here is going to be okay probably for them because they'll generate good enough returns and they'll grow fast enough. And certainly relative to asset management in general, that should generate a premium multiple. So I think that's the course they're on and they're expanding and they're doing great. Our whole reason for being is still to be scaled, but we're trying to maximize profits under management, which is we're trying to actually be in the kinds of businesses that are probably less highly valued in the public market because they're not all fee. We have some fee-driven businesses. We have a great credit business, but we're trying to generate the maximum amount of return for every dollar at scale that we raise. So we're 20%. I mean, 10% of all of our capital is our own. And in our private businesses, we're over 15% in our own personal capital. And we derive a lot of our returns to our partnership from from carry. And that's a great— that's another— it's just a different business model. It's a great business model. So the amount of returns we make relative to our assets under management is quite high. But it doesn't have the stock price piece of it. Yeah. I would say for Charlie and I entertain the myth that we have younger listeners and we actually do have— I would say for any younger listener, I think, JC, what you just said is such an important observation about the structure of the industry. Because if you ask 10 lower middle market deal people, "Well, what do you think of the large public private equity funds?" They would say, "Oh, they're asset gatherers. They're not in the business of alpha anymore." And I think you really make the point that, well, they are, but they've got this other way of generating return also, whereas you operating at a similar scale have not opened yourself up to that, that other return. So you, you really have no choice but to continue to generate superior alpha. Well, and it's, and it's, and by the way, I think, you know, last time I checked, you know, the business gets tougher and tougher every year. Um, and so you need to reinvest some of that that into getting better at what you do. I mean, it's, you know, one of the reasons that we ended up expanding a number of new businesses back 10 years ago was we were, you know, losing people to specialty funds, you know, because we didn't have specialty funds. But, you know, I call them the prodigal children. We actually brought back a bunch of Bay Capital people that loved our culture, but we needed to find a lane for them. So the guy that ran our life science, the guy that runs our life sciences, came back. And the reason we wanted to be in the life sciences business is because we had this great late-stage private equity healthcare franchise, but having the depth of science knowledge that comes from having 20 dedicated professionals that know the regulatory, the clinical, the reimbursement dynamics of the life sciences industry, by having that capability, that makes us really good at late-stage healthcare private equity. And so we're constantly figuring out how to to get deeper and deeper to become the alpha player that we want to sustainably be. You can't sit still. So yeah, we think there's a long room to run still on alpha. You talk about public shareholders. I've been on a dozen public company boards. They've only gotten worse, actually. The whole premise of our industry was public governance was broken and we could do better by being long-term and our orientation and be more active governance partners to management teams. That still exists today, but it's actually in some ways gotten worse in the public markets, which means our basic tenets, the reasons for us being what we are, are even more relevant today than they were when we started. JC, you recently stepped down as managing partner and carry a title chairman. But know that you're still great, you know, very intricately involved in the business. When you think back at this career and thinking about advice for younger folks, I know you have a son that's in the business. What would the advice, what would 60-year-old John Connaughton say to 25-year-old John Connaughton? Or maybe you say to Will when you're thinking about embarking on a career in private equity. Yeah, first of all, you should call my son and ask him if he ever takes any of my advice, how worthwhile this pearl of wisdom really is. This will sound a little off in a way because I always think about what is your own brand, what is your own identity, you know, thinking about not to be overly calculating about what defines you and your success, but to be somewhat intentional about, you know, what is it that I can I can deliver, and then ultimately investing heavily behind it. For me, I wasn't like— some of my partners are incredible relationship guys. I mean, they like, they light up the room. They, you know, everybody wants to talk to them. And like, and they always try to tell me, you should, you know, that's what you got to do, JC. Well, you know what, I'm not going to be you. That's not— I can't do that the way you can do that. But what I can do is I can, I can be really, really deep in, in healthcare and understand that vertical in a way that nobody else can, and I can derive value in that content to develop relationships, and I can derive insight and network effects of having such a depth of understanding of that. And so, for me early on, that allowed me to be more externally oriented. That allowed me to be able to create relationships. And the point of that story isn't so much that you need to be deep in a vertical, but I think you need to think about what is it that you uniquely are capable of doing or that you can acquire skills around that can make you really a central element of some enterprise that you're going to make an impact on. And in investment business, I think increasingly, having that deep ecosystem that surrounds your insight, and how you could create value, I think has only become even more and more relevant. I mean, even think about AI. AI today is so important. Getting depth and understanding how to forward deploy opportunities with respect to change inside companies using AI, that would be an intentional way of positioning yourself, not to be just a good investor who worked at Goldman Sachs or worked at paint a company, but, but actually to create some real depth surrounding some of those core skill sets. I, you know, that's an intentional way to, to be relevant and, and to make impact early on in your career. And when you make that impact, people give you a lot of room to, to, to get to higher levels. That's sort of my number one advice. The other one, which is kind of more sort of the obnoxious JC, is always try to do the job of the person that you're working for. You know, I think, yeah, Trying to not just sit in your lane, but take the next lane even if it's risky. I think that's been core to at least my path. At the risk of, JC, of giving you a compliment, somebody that has been in the room with you has said that more so than anyone else, you ask the right questions of a business quicker than anybody else. You get to the meat of the matter faster than anybody else. And again, I don't want to blow sunshine, but I thought that was an interesting takeaway. Well, that would be a compliment worthy of my great mentor, Mitt Romney. Again, going back to the core of what we started with, Mitt was, actually Mitt was not, he didn't do a lot of investments, but man, he asked all the right questions. That's cool. And he made me think a lot. And it's a great skill and it ties into listening and watching. Right. And not, not just being wedded to your, your book, your presentation, what you have in mind going in. Um, so JC, you've been, you've been great having you here. Before we say our goodbyes, I actually, I have a question. You know, you've covered so much range. I'm curious, who is someone completely unrelated to the world of finance and private equity who you admire What do you admire about the present company excluded, mind you? That's quite a filter to sift through. I admire a lot of people. I mean, honestly, you know, having parents that went to a country that they had no siblings, no friends, and having 5 kids in 7 years— my mom had the Irish quintuplets— that I got a lot of admiration for that courage. I don't, I don't know that, you know, if I think about our families and friends and the courage that that takes, that's quite extraordinary. Thank you. I know you've done some investing in professional sports teams, including the Celtics, Boston Celtics, Baltimore Orioles. Love to hear about kind of your take in terms of doing that now versus how businesses in the professional sports leagues were run kind of 20 years ago. What makes it a compelling investment opportunity? Yeah, I mean, it's not all that different. I mean, look, it's fun, you know, but, and you get passionate about things that you enjoy, but, you know, I think that can take you into quarters of diminishing return. But I think a lot of the businesses, and I would include the Orioles in this category, I would include, you know, when we bought the Celtics in 2003, and I would even include Boston Legacy Football Club, which is what my wife and her partners are undertaking. You know, a lot of these businesses are a little bit like we talked about, you know, there's big opportunity, but they're not realized. I mean, certainly the Orioles had a lot of challenges, over many years, you know, with sort of the ownership and its ability to achieve some of the business objectives, you know, that are possible with sports team. Same thing with Celtics back in '03. And the Celtics now are one of the best-performing business operations on top of an incredible basketball operation. Same thing with the Orioles. They had a great— and they do have a great baseball operation, but the opportunity put on top of that baseball operation, you know, a business operation. We're in the early parts of that journey, but that's a big opportunity. And then the case of women's soccer, women's football, if you will, you know, the ability to bring a franchise, you know, last time I checked, you know, there's 50%, maybe more than 50% of our population is women. So, if you're in a big sports town like Boston, the opportunity to bring that type of product into this sports-crazy city. I mean, big, big opportunity. So, you know, these are inflections of a different kind, Charlie, but they're nevertheless inflections that can also be possible and a lot of fun. And I think one of the recent adds to your lengthy CV is deal associate at Boston Legacy FC, where you're running crunchy numbers for this new sports league, right? Yeah, well compensated too, right? Yeah, no, I didn't. I got a few meals, um, but I, yeah, I was running the, the Excel spreadsheets. The good news, they weren't Lotus spreadsheets, but Excel spreadsheets, and, uh, reading the docs, uh, to help out. So this is a women's soccer team? Yes. JC, you're a good man. Thank you for sharing your story. Thank you for sharing Bain Capital's story. It's been a real pleasure. Yeah, that was great. Thank you, guys. Thank you for joining us for this episode of Middle Market Musings. We'd like to extend our sincere thanks once again to John Connaughton for joining us today, as well as our sponsors New Heritage Capital and Greenberg Variations Capital. Thanks as well to our editor Jason Zappolo. If you enjoyed today's podcast, we'd encourage you to like and follow Middle Market Musings on Spotify, Apple, or whichever provider you use to access podcasts. And of course, feel free to share with your friends. Thanks again and look forward to catching you on the next one. Pay me, you owe me. Pay me my money down. Pay me or go to jail. Pay me my money down.