Investing Billions - E426: American Securities CEO on Warren Buffett, Private Equity & Playing the Long Game

Episode Date: September 7, 2026

What happens when a private equity firm refuses to chase every new opportunity and spends 30 years getting better at one thing? David sits down with Michael Fisch, co-founder and CEO of American Securities, to unpack how the firm grew from a $71.4 million first fund to $23 billion in AUM without abandoning the investment discipline that got it there. Michael explains how private equity evolved from a sub-$1 billion institutional market into a multi-trillion-dollar industry, why American Securities resisted the temptation to expand into every adjacent asset class, and why seeing more deals matters almost as much as knowing which ones to reject.

Michael, you found American Securities Capital Partners, 1994, with a $71 million first-time fund. Today, you have $23 billion at EUM. How has the market evolved over several decades? A lot in every way. At the origins, going into the 1980s, there was really no M&A market at all. Companies didn't get bought and sold unless they went bankrupt. Investment banks had no M&A investment bankers. One guy at a desk drawer might have been the selling department for corporate finance.

When I came to Wall Street out of college in 1983, I was lucky enough to get hired by an investment bank in their mergers and acquisitions department. It was Goldman Sachs. Very lucky to have been there. Terrific people I worked with and many of them are still my friends. I saw then as the most junior person in the 33-person mergers and acquisitions group because Wall Street was so much smaller then that, there were these people then called bootstraps, bootstrappers, who were sometimes looking at smaller M&A deals and paying prices that were higher than anyone else, so they would buy the company. And for the rest of our Goldman Sachs' M&A activity, most of the clients and the buyers were

public companies, and the complete focus of the financial analysis was, is it accretive? Which is to say, if we do the acquisition, will our earnings per share go up, creative versus down dilutive? And if we had to pay such high price that it went down, how long would it be dilutive? And these other people weren't looking at that. They were looking at cash flow. So, for example, if you had two chemical companies and they both had the same net income, but one chemical company had just built a, a brand new plant, brand spanking new, like you bought a new house.

And they had used their cash to do that. And so they were going to have depreciation. That would take down their net income. And another competitor had the same size plant, the same revenues, the same net income, but it was an old plant. There was no depreciation. From a public company perspective, buying them might be exactly the same price. But if you're going, if you're going to be exactly the same price, but if you

were thinking about for a private equity lens, that first company with a brand new plant, I don't have to pay for a new plant for five, 10, 20 years, and the depreciation isn't cash. And I don't care about EPS, earnings per share, net income. I care about cash flow. And this, you call it a religious war, if you want, just looking at it from a different perspective, was interesting to me. And when you're younger trying these things out, you're never really sure, does this going to work?

How is this going to happen? And having seen this, you referred to our first. fund in 1990, closed in December of 1994, 71.4 million. Last point four million was hard to raise, too. We had a belief that, yes, this cash flow thing really did matter, and we could apply it private equity, the term we used today didn't exist. Leveraged buyouts. Then it was, then it was leveraged buyouts, and the people who did it were called Leverge Buyout Artis. So there's a part of it, which doesn't quite do AI, because there's a little bit of like some of this thing. It's the same math in that company example I just gave you, but how you think about it was the artistry

and raising the financing. The entire global institutional private equity market in 1983 was less than a billion dollars. And you could name on less than two hands, the number of players. And then it just grew. And there were probably the first time I heard TFD too much money chasing, see, TFD, too much money chasing too few deals was in the late 80s. There might have been 100 private equity firms. And, of course, now it's multiple trillions and there's thousands of private equity firms. So it's just kept growing and growing. So it was all different back then.

And the world is different. The pace of change gets faster and faster and faster. When I came to Wall Street, there was no FedEx. There were no cell phones. there was teletype. I don't think there were fax machines and just the speed of information. What made you confit enough

to go out on your own and start a fund? I was super lucky, as I said, I had the great, good fortune to work for Goldman Sachs beyond Wall Street in 1983, in mergers and acquisitions as well. Another set of good luck. And then I went to business school. Then I came back to Wall Street

and went into private. equity and I saw a bunch of private equity funds and I worked for two different private equity funds. And in general, the math that I was talking about before, just the fundamental cash flow math that purchase multiples worked and the deals that I'd been fortunate enough to be involved in worked. And so private equity as an asset class then was like a rising tide. And a rising tide floats all wood, but not all wood is a good boat. As I looked around and the skill sets needed to succeed, I thought, to apply what we now call a private equity investment discipline,

were evident in very few firms. The people that like at the beginning of anything, the people that get into it often are not in what is the prior period's best job, super successful. They kind of have something, they're kind of on a... They have a chip on their shoulder. Or they're just doing nothing. I have friends from business school

who became really, really successful internet entrepreneurs and business founders because they were sitting around with no job. They didn't have a great job at McKinsey or at a great investment bank. This one friend of mine, great guy, was sitting around in a coffee shop and thought, I can't create an ISP because I can't get, I can't get, you know, internet in my Starbucks. And he founded a massive, multi-billion dollar ISP company. Similarly, some of the early practitioners of private equity

weren't in that wonderful mainstream job that their generation, or wherever they were in their career, thought was great. And so they were available. And so that, I thought, created an opportunity. And I wasn't lucky enough to be working for one of those firms that I thought was really well managed. And so I thought, hey, I can probably do this if I can find the right people to partner with.

And that was all driven by the capital that would underwrite it, kind of like a mortgage for a house. The metaphor to mortgage is a very easy way to understand private equity leverage buyouts. that because you got to have a purchase price and a seller like a house, you finance it with debt and equity, typically like a house. The only difference is this house might be more like an apartment building. It's got rental income.

And so whether your price has to make sense. Yeah, the cash coming in has to make sense to pay the interest and hopefully amortize the debt. And then at some point sell it for a profit. I've been thinking about this quote you said when we last chatted, the John D. Rockefeller, which is a friendship founded on businesses better than a business founded on friendship. What did he mean by that? I don't really know what he meant by that because he had passed away before I was born. But what it's meant to me is I am lucky to have some just terrific friendships.

But they are founded on working together. I have been lucky to work with some terrific people and they have become lifelong friends at everything I've ever done in work. And it includes CEOs of companies that American Securities has invested in. It includes colleagues back from the early 80s at Goldman Sachs. And so if you're working with someone, you have this ambition to be in private equity, to be in podcasting to whatever it is, the people you meet doing that. You want to do that.

And other people around it want to do that thing. And if you do something with someone and that becomes a great friendship, that's really cool. And it's probably likely to happen because you have the same interests. And you'll click with some people, but not with others, but the ones you click with you stay with. That has been my experience and really enriched my life tremendously. And I'll distinguish that from, hey, I met this guy playing pickup basketball and he seems really fun. Let's invest in a company and give him some money if you're an investor. It might work out, but the odds are probably not as good as if you've worked together

and had lots of fun together and kept working together. Also, the great thing about this friendship built on business is that it starts with the battle test. You don't have to wait 10 years before the friendship is battle tested. It's forged in battle and then the friendship comes. That's exactly my point,

David. It's created out of working together, enjoying it, probably having some shared success. And probably going through some trials and tribulations. Or being lucky enough to find that quick flip internet, whatever. But that makes a lifelong friendship and it's the fun of the business. Money is the ultimate commodity, so

all private equity firms in a sense are in a commodity business, but we're really in the people business. It's the relationships because we're working through managers who actually run companies day to day, very different than a trader on Wall Street who's buying and selling in the casino. We're working through lawyers and bankers and accountants and just a whole range of people. So we're in the people business and you got to like people. You've got to form good relationships with them and they enrich your life if you can do that. I want to tie the knot on this concept of friendship through business and maybe thinking about it as your friendship portfolio.

How did that evolve through your career? How much of your friendship became from business versus personal life and reflecting back, what would be your advice for someone kind of building out their personal relationships? That's a tough one. And my arc and what I like to do is, and seeing about the world, is probably just, you know, different than many people. So firstly, I'm kind of an introvert. I like to read a lot. I like numbers. I like thinking about things. And I like doing things. So it was absolutely the case. Early years just in school and one of all, most of my friendships were activity based. The activity

could be playing bridge before. The activity could be being class with a bunch of nerds. The activity could be at practice after school, which was the best part of my day. I was, very aware of just being inactivity-based friendships, be Boy Scouts, church stuff, sports, whatever it was. And in your adult life, what do you think brought you the most joy from a friendship standpoint? Building on those stuff in school, when I started working, I was all in.

I mean, I'm not a victim of Wall Street. I loved the work when I got to Wall Street. I thought it was super interesting. I thought the people did it were super cool. And I felt like I had just found something I just loved doing. But I was super happy, always and grateful. Back to your battle metaphor, when you're working on all these deals with these people, they do become your friends.

You're getting on planes, going places with people to visit with companies. You're working late at night and grabbing, eating dinner in, but in a conference room. So you're spending a lot of time with people. So these are friendships formed based on business. And they've just been a natural part of who I am. I give this advice to young people coming out of college, coming out of grad school. The two most important things that I've always used in job selection, do you like the work and do you like the people?

All the hype around anything means nothing. If you don't like the work every day, it doesn't matter how much they pay you. You're still miserable. It might be wealthy, miserable, but you're still miserable. And the job in life is not to be miserable to be happy. And secondary, we were talking about it before, the people. So if I think I'm really going to like the job and I meet the people and just I kind of I can see myself in you. That's a good way to start.

And then as you say, once you're in the battle, you get even closer with people. And I think on the people aspect, it's so underrated. A lot of people obviously understand the concept of working with people that you like. But as a form of duration, in other words, if you like the people that you're working with, you're just going to work harder, longer. you're going to go through so much more crap and so many more trials and tribulations with the right people versus if you have the same exact business

with somebody that you may just somewhat like or worst case, don't like at all, your tolerance for any kind of challenges is just going to be an order of magnitude lower. All of that and more. If you love the work and you love the people, you're really not working. You're having fun.

Then it's like, can you survive? And once you're past that, than you're defile it. Can you develop enough aptitude fast enough to be valuable to your peers so you survive and you don't get part of a riffer? But like, I always love the work and I was lucky enough to, like most of the people

I was working with and work with the ones I really liked, so you're not really working. You're having fun every day. You're showing up every day to learn and something you like doing and doing it with people. And so then it's like, it's the coolest thing in the world. But I get paid to do this. I might pay for this experience

because I think it's so valuable. and I love the people I'm doing it with. And so that's kind of the holy grail. If I back up, when I grew up, my parents got divorced when I was three, single mother, two sisters, financial insecurity. So the first enemy was poverty. And then when I started to be able, and I always worked summer jobs and whatnot.

And when I got to work at a certain level, like, okay, I'm not worried about poverty. Now I'm worried about boredom. And, of course, our real enemy is time as you get older. But if you love what you're doing, you're never bored. And so I have enormous respect. I mean, I love planning. I love industrial companies.

It's what American Securities does. I love going to them. I love the people that work in them. And I am so impressed, frankly, at these people who are doing these jobs that I personally couldn't do. But they are doing them every day and they're showing up and they are great employees and great workers and great colleagues and teammates. And I'm just in awe that they can do that.

And I can't. But the good news is I can do what I have been doing and loved it. You've been with some of your partners for over 30 years, over three decades. What's the secret to that? for in some cases. If you apply these principles that you would want for you, love the work, love the people you do it with, and I'll say be a team player, not a lone wolf, well, we try to hire those people. So we spend a lot of time in our recruiting process. Sometimes people joke like we've met twice as many people in your process as anyone else. We're almost like insurance success

from the onboarding. But the idea is we want to really like them and be excited that they're going to come work with us and make sure they're going to like the work. And then we'll figure out how to be successful together. So we spend it. That's a problem that some of the most successful people in the world still struggle with today hiring. How do you do risk that? Everyone I talked to on the show is chasing the same thing, an edge.

And more and more, the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of the information gathering for you every day. And most tools are very good at sounding right. The summary reads clean, but can you trace it back to the filing? the transcript, the specific passage that drove the answer, or are you just trusting the confidence of the output? For investors, that's not a minor concern.

A missed filing, a misweight of source, a context that got lost somewhere in the retrieval chain, those aren't edge cases. They're how decisions go wrong. Alpha Sense is the AI market intelligence platform built specifically for this. They own the content. Over 500 million curated documents from broker research and expert transcripts to filings and earning calls and they own the retrieval layer on top of it. So every answer links back to an exact verifiable source because the answer is only as good as

what's underneath it. And with Alpha Sense, you know exactly what that is. The edge goes to whoever could trust their information and prove it. See it for yourself. Start your free trial at Alpha-sense.com slash how I invest. That's alpha dash sense.com how I invest. This is almost like investment judgment. I think about so many things.

triangulation and the more triangulation you can have the more perspectives on a problem the more likely you are to understand it more fully see it better than you otherwise would and if you apply this concept of recruiting what most people do is they get a resume which is a summary of what the candidate wants you to think about them and is done and you interview them in whatever style you use. And what a lot of research has shown is that there are implicit and real biases. There is sometimes a lack of rigor. Like, for example, we grew up in the same town. We have a lot in common. We went to the same school. We have a lot in common. We could be nothing alike at all.

But you have this bias if you have these commonalities, just to pick those. And you want to try to screen those out or get more perspective. One way to do that is standardized, effectively standardized personality tests to see, okay, we got the resume and I met the person, but like what do they really like? How do they think? Are they introverts or the extverts? Are they new or literate? Are they team players? So you can do a bunch of personality profiling stuff. Have those worked for you? Absolutely. And you can take that to the next level with senior executives, there are firms that have written books about how to interview better and more

ensure success. So, and every person is also another perspective. So we try to triangulate. And again, early on in American Securities, we started doing quick testing on what kind of person is this. So, and it would fit with what we thought we were interviewing and what the resume said and what the job was like, okay, this is more likely to work than not. So we just try to get more perspectives.

And it's the same thing when you're looking at a company. Talk to more people in the industry. Talk to more people around the industry. Talk to suppliers, customers, competitors, former managers. The more information you have, the more fulsome and likely accurate your perspective will be. What tools are you using and what books do you recommend on recruiting? I just said before on the tools, it's a broad array of people who are going to work with the person and should have expertise in what that person is going to be doing to assess. their capabilities and some sort of third-party interviewing testing metrics and reference checking,

not just the resume, not just one or two people leaving. Not taking them at their word. A lot of top LPs, minimum two dozen reference checks on their GPs that they're investing in. Which books have stood the test of time? Well, I haven't read that many books on recruiting. There's a firm called GH Smart that I know quite well. Top grading. And top grading is a book that I think has a lot of,

learnings for people. I read that book, I think, first time 20 years ago, and then his son wrote a book Who, I believe, as well on the same concept. But the entirety of the concept is that people are extremely consistent across their career. So if you want to figure out how they're going to work in your job, you figure out how they've worked systematically at every single job in different contexts. Oh, absolutely. And also the notion that the best indicator of success in the job you're hiring for is someone who's done that job and done it well somewhere else, as opposed to a step-up candidate who has more risk, maybe more upside, but more risk or a lateral grade in marketing. We're going to try them in manufacturing.

It reminds me of a Charlie Mungerism, which somebody asked him how he hires for people. And he said, we look for people that have done this job well, and we believe they'll be well, do well in this job. And then someone says, what if someone hasn't done that job before? And he said, we don't do that. Sometimes having that discipline is critical. Well, and again, we've been investing in industrial. U.S. industrial businesses and service-related industrial companies in the U.S. for years,

and that's what we do. So we should have an advantage looking at those companies because we're not looking at VC companies and startup companies and infrastructure companies. We just do that. And so like Charlie Munger and Warren Buffett, they always knew what their sweet spot was and they didn't go out of it because they didn't have to. I had a famous investor who had done two deals with Warren Buffett. I asked him what he didn't like and kind of said it as a compliment, my base that he's so disciplined, he will not think outside of his box. It's impossible to get him outside of that box.

I had a pleasure to know Warren Buffett since 1986, and we actually sold him a business. I know the person a little bit. You know the box. I know the hype and I know the reality. But Warren also learns. He learned. He evolved. Remember, he said he'd never invest in technology, and then he became a huge investor

in Apple. He does evolve, and he's a lifelong learner, as was Charlie Munger. So his box did expand over time, and he was able to apply the same principles to some companies that you would never thought he would invest in initially. And he said he wouldn't. I mean, in 1986, he said to a class of people at Stanford Business School, they said, what about investing in Europe? And Warren said, well, I like Europe.

I know some matriads in restaurants. but I don't know the accounting. I don't speak to language. I don't really know the laws. The market's kind of small in Europe, each one and fragmented. If I can't make money here in the U.S. where I know the laws, know the accounting, know the people, and it's a big market, why do I think I'd be able to make money over there?

Now, ultimately, he became an investor in Japan and all sorts of other places. So he evolved. And a lot of those principles were not violated. European Union came about, things started to be translated, Americans went over to Europe to be more of the deal intermediary. So a lot of those principles actually changed to your point. Absolutely. And his skill of his capital changed. He kept having more and more money. And so to put that money to work and have it matter, he was investing really in global businesses. And so now it was more a world market than just a U.S. market. So that's a bunch of examples of how he kept

devolving and kept learning without violating his principles, whereas sometimes people say it, and then it doesn't quite work so well. You start, as I mentioned, 1994, the $71.4 million fund in industrials, and you've really stick to your knitting for 32 years. Have there been these siren calls to go into other industries? Sometimes. There are always things that are in, obviously in our sweet spot, or anyone's sweet spot, but we try to see a, ton of deals. We try to have a massive deal capture because, and work really hard at seeing deals, because that, as I say, a type B activity. You have to always be working on your deal flow, because that's relationship-based. The type A activity is running the numbers and having the balance

sheet balance and things like introverts like we really love because you control it. The balance sheet's going to balance by the time you do the model, whereas the relationships are softer, and you've got to just keep them alive all the time. So you want that big funnel because ultimately most people are going to invest in the best of the deals they see. But if they don't see the great deals, they're going to invest in the best of the average deals. So I think it's really important for everyone who wants to be an investor, whether it's public markets, private markets, whatever you're investing in, to have an active funnel, to see the best deals, and then have a very clear screen because time is our most precious asset to what you're looking to filter

to the very smaller number of deals that fit what you think you're good at. And we have always been, in a sense, super humble about what we know and what we're good at and where we think our right to win is and the best risk-adjusted rates of return for our investors will be. And it's always been industrial companies, U.S. headquartered businesses and some related service businesses. Occasionally there are things that we manage to think fit that box on the periphery. and they generally work out. They don't work out quite as well as the core sweet spot, but they generally work out, but we've narrowed and narrowed those over time.

And because of that focus and because of how we think about it, that next tech thing, we have plenty of AI and plenty of tech in our companies, but that fundamental VC startup, there should be someone else who has advantages there, and I wish them lots of luck. And on behalf of not-for-profits,

I'm very happy to approve some investments into those firms, but it's not what we do. Set another way, what allowed you to say no to these super sexy opportunities is knowing your yes, knowing exactly what you stood for. And being able to find plenty of that to invest in and thinking that's just, that was where our right to exceed. Support for today's episode comes from Square, the all in one way for business owners to take payments, book appointments, manned staff, and keep everything running in one place.

Whether you're selling lattes, cutting hair, running a boutique, or managing you a service business, Square helps you run your business without running yourself into the ground. I was actually thinking about this other day when I stopped by a local cafe here. They use Square and everything just works. Check out as fast, receipts our incident, and sometimes I even get loyalty rewards automatically. There's something about businesses that use Square. They just feel more put together. Experience is smoother for them and it's smoother for me as a customer.

Square makes it easy to sell wherever your customers are in store, online, on your phone, or even at pop-ups and everything stays synced in real time. You could track sales, manage inventory, book appointments and see reports instantly, whether you're in your shop or on the go. And when you make a sale, you don't have to wait days to get paid. Square gives you fast access to your earnings through Square checking. They also have built in tools like loyalty and marketing so your best customers keep coming back.

And right now, you can get up to $200 off Square hardware when you sign up at square.com slash go slash how I invest. That's SQUA-R-E.com slash go slash how I invest. With Square, you get all the tools to run your business with none of the contracts or complexity. Run your business smarter with Square. Get started today. Growing up, I thought managing money meant paying bills and balancing a checkbook.

But as you know, that's only a small piece of the financial puzzle. Managing your money takes more than just checking your bank account every once in a while. And great financial decisions come from having a complete picture and proactive management for your income expenses and investments. Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one place, making much easier to understand where your money is going and whether you're actually on track to achieve your financial goals.

What I like most about Monarch is that it doesn't just tell me what already happened and helps me plan ahead. The AI assistant lets me ask questions about my finances in plain English and the AI weekly recap highlights spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket. Write your own money story with Monarch. Use CodeInvest at Monarch.com to get your first year of Monarch core half off at just $50.

That's 50% off your first year at Monarch.com with Code Invest. Growing up, I thought managing money meant paying bills and balancing a checkbook. But as you know, that's only a small piece of the financial puzzle. Managing your money takes more than just checking your bank account every once in a while. And great financial decisions come from having a complete picture and proactive management for your income, expenses, and investments. Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one

place, making much easier to understand where your money is going and whether you're actually on track to achieve your financial goals. What I like most about Monarch is that it doesn't just tell me, what already happened helps me plan ahead. The AI assistant lets me ask questions about my finances and plain English. And the AI weekly recap highlights spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket.

Write your own money story with Monarch. Use code invest at monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code invest. You went from 71 million to tens of billions of dollars. How did you know when it was the right time to expand your fund size? I think all of these journeys are kind of personal because, hey, you lived it and be the forces that you saw at the time. And when we started 30 years ago,

if you were raising financing of more than, let's say, $150 million, so if you were buying a company for $250 million, and you're putting up $50 million of equity and maybe $50 million of mezzanine or preferred stock and borrowing $150, that $150 was a syndicated, allowed a bank deal to be syndicated. And if it was, which meant the some intermediary bank like J.P. Morgan or Goldman Sachs, Citibank, B of A, pick your firm, would agree to underwrite that loan and sell it to their

account holders, insurance companies, small banks, pension funds, large list of buyers. When that happened, you got lower interest rates. A couple points, then the alternative, which is a club deal where you find one bank or two or three banks to take the whole loan and they just commit it and you're done. There's no syndication process. Kind of like private credit today, which is a whole market. So if you could do the syndicated market then, those companies tended to sell for one or two times more multiple. So instead of paying, let's say, six and a half seven, you'd pay eight and a half nine for the company. And we didn't care about how much money we were managing. We just cared that we made money for our investors. And I

used to talk about Warren Buffett back then because I had come to know him a little bit. Buffett's legend is his returns. It's not how much money. It's more impressive because he managed so much money and he made returns that were generally beating the S&P. But the stock and trade of your investor is having good returns. And that's what we cared about. And so we didn't care about size. We cared about having good returns. Risk adjusted. And that meant buying it for seven and a half was a complete winner versus paying nine and a half. So we wanted to be just below Mr. Mega. Now, what happened, the big, what are now mega firms, but the bigger firms at the time, well, they kept raising more money.

If they started off with, we had our little 71.4 million kittie, and they started off with a massive 350 or 500 million dollar fund. Well, when they went to a billion, it gave us the opportunity to operate below them so the competitive set wasn't as stringent, but it allowed us to have, do the same thing, but just do it with bigger companies. And so that's basically how we grew from 71. 1.4 to 350 to 650 to a billion to 2.3 to 3.6 to 5 and then so on. You didn't break my venture principle, which is don't compete directly against Sequoia.

Correct. Correct. We, now, again, at some point, they fractured and started to have small market funds, so you couldn't help it because they kept their massive funds, but then some people created second funds or smaller capital. But it was a general statement in those early years, we just were able to do slightly big. bigger deals in every fund, doing the exact same thing, same investment principles, market leading businesses, back in the existing management, because they'd gone for bigger fish. And why avoid starting private credit or other expansions of your business? It's not a void. And there are things we've tangentially put our toe in the water over time, but we have always been uniquely focused on our core private equity funds, and we still aren't the only

we do now because it's what we like doing. These are personal journeys. I love the investment business. I love meeting management teams. I love the details of transactions. I love going to plants. Managing other people having that fun is not as much fun for me. I'd rather be having the fun. And so we're all kind of into that what we do all the time. And that's fun for us. It's interesting. You have this keen awareness that a lot of founders think about their business, whether they're founders of technology companies or financial firms, almost as this thought experiment. Like, what should be the Pareto optimal way to structure

and how do we maximize the U.M? But you're very aware that you're not only the founder, you're also the person executing the strategy, and you're really creating your own workweek as you build your business. There's lots of other people with American security is responsible for our success, and they're doing the same thing. But just as a personal journey, and maybe a failing lack of ambition,

I used to say, when people say, what's your ambition for the firm? I think put one foot in front of the other and not trip. If we just keep doing what we're doing, our kids will not grow hungry, they'll be able to go to school, we'll have a roof over our head, it'll be just fine. And if we like doing it, why change it? And so, as I say, it may be a failure of ambition, but I like the investment business. My partners like the investment business, and that's what we try to do more of and not being the managing of other people doing the investment business. And certainly $23 billion is not like the turtle. it's a massive amount of capital.

But have you found that a lot of your peers, the ones that were successful, also slowly built, or are there people that really sprinted and ended up being successful? The world's a big place. There's all... Different models work. Different models work,

and different models bring happiness to different people and some work for a little while and then come undone. As a general rule, private equity really different than private credit and some other things. It can only grow so fast. You just can't add lots of assets in private equity. Mark Brona-Dapal is brilliant.

He was one of the early folks to say this, basically. The private equity business can only grow so fast because you can only do deals of such a size and there's only so many people who can do them and it's just limited. Whereas in private credit or debt, there's infinite amounts of debt out there in the world. There's companies that are issuing tons of debt. And instead of being 1%, you can be 2 or 5 or 10% if you have more money. It's still 1% of your funds, but it's easy the same people can invest a lot more money. Private equity is harder that way.

It's almost like a TAM of the opportunity set. So the TAM's gotten bigger because the industry's gotten so much bigger. But in each sector, whether it's industrials in the United States, consumer or globally, there's only so many people. That person can only invest so much capital because he or she can. can't do more than pick a number of deals a year, put out a number of capital. Like it just can't grow as fast as debt can where I can, oh, I'm doing this financing for pick your big public company for this data center. It could be 10.

I can take 10 million of this billion dollar facility or I can take 100 million. It's the same work. And so you can expand if your asset gathering and in private equity, you can't. The companies just don't expand that. How's the business evolved from going from a few partners doing their own deals to now having 150 employees. With people who've been with us, for, as you highlighted, David, for a very long time. So you know, I had one partner who say, it's not that someone says it's blue or it's green.

It's that you know they're colorblind. So if they say blue, it means green. You've come to work with these people for a very long time. You know their biases. You know their strengths and their weaknesses. Well, I mean strengths. Which is what it means when they say something. You know what that means for them because we all sound different and say things differently.

And so when we first started, like we were just a bunch of deal people. And I think most private equity firms evolve the infrastructure in a step-function way. So first we were just a bunch of investment people, looking for companies, meeting with management teams, financing those businesses, sitting on the boards of those companies and trying to help the management teams create very successful investments for them and their families and for our investors at the same time. And then there are two other streams that come to pass. One is investors start saying, okay, you might be a great deal person, but why are you the best owner of this asset? What do you bring to the company after you've bought the asset? And people have developed very different strategies around that. Some, many have operating partners for a variety of reasons.

Some would call those shadow CEOs. Our approach was to have what we created what we call our resources group, the American Security Resources Group, which is actually the largest sector of our firm for years now, bigger than our investment team. And it's some 50 people who are functional experts in something, hiring, procurement, Salesforce management, financial planning analysis, a whole bunch of other things, things that can help the management teams be better depending on what they want to be better in and we can help them with IT.

And that's been super successful. And we've tried to do things that we can do in a group basis that none of our companies can really be expected to be great at on their own. And what I mean by that is take IT. Everyone has an IT leader in a company and he or she's probably great. Most of the folks we meet are great. But a company only puts in a company only puts in a company. a new ERP system every seven to 10 years historically. So most IT leaders have never put in a new

ERP system. And that can be really complicated because the system always works according to the manufacturer. And they're not wrong. But the company's application of it, their knowledge of how to use that system and how it fits into their business processes can require an enormous amount of rejiggering to make it all work for the customer and the manufacturing floor. Our IT people are terrific. They put in typically two ERP systems every year because our portfolio is big enough. So they're experts at that and helping the outside integrators and the systems and the management team make it all happen. That's an example of something that we can do really successfully that no company can do really great on its own. And likewise, we talked about recruiting

before on the professional investor side, all of our companies recruiting for positions all the time. And many of our companies have plants in different locations and different functions. We are doing so much recruiting among our roughly 120,000 portfolio company colleague base that our HR folks know who the firms are and how to manage that recruiting process to cut down the time and have a better quality outcome as we were talking about. And we rate ourselves, we go back six months after. Does the company think that they hired an A player with our help versus not to make sure we are getting great players, great people to join? On this value add, on these resources that you give to the companies, is it more or less perfectly, perfect information on which firms are good at that and which firms are not? There's never perfect information. I hope we're super well known for having the highest, what I call CEO win rate in private equity.

for our history, more than 80% of the CEOs who were there when we invested in the company were there when we exited or were there with us today. So that's a CEO retention. I call it a CEO win rate because most of our companies do well in the interest of the CEOs. But I think that I've never heard of anyone with a higher CEO win rate. Absent ordinary course retirements, which isn't like one of, we decided you need to retire. And we're really proud of that. So we are looking really hard when we meet a company.

is this CEO someone that is super good at their job and wants to work with us and vice versa, much like our thing for recruiting ourselves. I want to work with people that I like. We want CEOs and we have some terrific CEOs and that 80% CEO win rate I've never heard one higher. So hopefully we're super well known for that. And one of the things that animates that is our resources group because, as I tell prospective CEOs, It's not that any of our people are necessarily better than your people. It's that your people have a day job.

And our resource group day job is to help your people win. That's all we want to do. Our purchasing people, our HR people, our IT service people, FP&A, they don't want to do your people's job for them and replace them. They want to help your people be better. And we've got, because we don't have a day job, we can help them be better. And things we agree that the company has an opportunity to be back. Double-clicking on the CEO win rate from the outside when you look at these private equity deals, especially with these highly shop processes, you almost look at it as a deal and somebody won the deal. But is there more to it in terms of making sure that there's culture fit similarly to how you would want to recruit somebody into the firm with culture fit? Oh, for us, there is absolutely. 30 years ago, we could get on a plane. A meeting would be set up for us with a CEO owner in a

city and based on we go have lunch and it may be the case it really happened that after that lunch we would sign a letter of intent the seller would sign a letter of intent with us at a price that then give us six weeks to do diligence and make sure we wanted to invest in the company and then we'd sign a contract now that seller is much more likely that situation almost never exists the way it used to and now that seller is much more likely to have interviewed three or four investment banks, picked one, spent a bunch of weeks or months writing a book, an offering memorandum, a selling memorandum or a management pitch deck, and have been coached on things that questions people like us will ask, private equity people will ask, and what the best answer is. So simple example is add-on acquisitions. 20 or 30 years ago, you might say, have you ever done an acquisition management team may say no. Have you ever thought about it? They may say yes or no. Okay. We'd have our view whether

you could, whether you had competitors for sale, whether they were synergies that could make this a more attractive investment if you were able to buy a competitor. Now, I don't think in the, I actually think it's possible in the last 10 years. No one in our firm has ever gone to a management presentation and the manager has said, yes, we can do acquisitions. And here's a long list. And here's a long list. even if they've never done one before. They're just coached. That's something that you need to have an answer to and say, yeah. So some people to where you started, they are, it is only about price.

The highest price gets the company and there may or may not be a cultural fit and the buyer may or may not care about cultural fit. We care a lot about it. And we regularly encounter management teams who are very attracted to that and they would love us to be our partner and someone pays more and we don't get that opportunity. But the good news is the funnel is pretty big and we see a lot of companies and we get that opportunity. And just to be brute, the seller doesn't care about culture fits sometimes because they're just looking to cash out. Who cares? They're like you and me and everyone else. They're all different flavors. Some really

care about culture. I want my management team to have a say in who the purchaser is. They're a new partner. I want the best for them. And some people for fiduciary reasons or other just want the highest price and they don't care about the continuation of the business and how it's operated in the principles. It just depends. You call it Mr. Mega, these large funds. Some of these funds are now over a trillion dollars, which is crazy. And now there's retail capital going into the market. How does that affect your business? The very small one or two that might be over a trillion, that trillion is not in private equity. There's private debt and credit. There's a whole bunch of other things.

But as I said, private equity, the largest, these are not for the fan of heart, don't get me wrong. I don't think there's a private equity fund that's over $30 billion. Now, $30 billion is a ton of money, but it's a long way from a trillion, is kind of my point. So there are certainly those Mr. Mega private equity firms, and all of those are global at that size. And there are some great firms. They've been successful for a long time, and they do a lot of things. they have multiple offices and there, if we were 150, they would have 10 or many multiples of that times the number of people. So they're applying the same principles in many cases in very

sophisticated ways, but they're not real competitors for us. But companies are a pyramid. So the number of companies that they can invest in is a much smaller subset than us. We have for 15 years been investing an average of $400 million per deal. maybe 350. And so in that $200, $500 to $500, $500 million segment of equity per investment, there is a lot of companies and more growing all the time

and big companies selling divisions or private companies selling divisions as they've gotten bigger that are no longer core to them. So we have a very active set of potential investments every year. We probably see four to 500 investments a year.

How many of those do you two? One to four. I guess what I was trying to allude to is my thesis is that if there's a lot of retail going into the mega funds, one very obvious, but perhaps not as obvious second order effects, is that capital has to be deployed somewhere. Firms like American securities are going to be net beneficiaries of that because of this new bid. What you're alluding to, David, is historically the investors in private equity funds, so-called the limited partners were banks, insurance companies, pension funds, and other institutional investors and some very high net worth family offices. Now there is regulation which is permitting ERISA and other individual investors to invest without high minimums or sophisticated investors, legal term tests. And this retail money is enormous to give you orders,

give your listeners orders magnitude. So if you're a big institutional pension fund, you might have 12% of your capital allocated to private equity. That wouldn't be unusual, 8 to 15. If your average retail investor has 0 to 1%, so the tsunami you're referring to is the retail investor because most of the institutional investors are basically where they want to be allocated in private equity plus or minors.

They've picked their managers. Some are growing, some are shrinking, but they're plus or minus. They're already a 10 or 12 percent. And so it doesn't matter how many GPs, private equity firms, come saying, please come invest to my next fund. They only got so much money. This whole new set, which is at zero,

and it's bigger than the entire institutional market, the individual investor market. So yes, it's a tsunami. The thing about that market is it's a retail investor, right? So it's very brand sensitive. And there's a lot of regular, regulatory work that you have to have in place to take retail investors, and it's just a slightly different what they care about and the level of support that they want from their managers is different. And you have to be happy with that. And it's for sure the case that the biggest firms are very focused on this dramatically. And they are focused on it directly through investment banks and other high net worth fund platforms. And they will, I'm sure, raise enormous sums of money from that channel. But there is, in our size range, there's always

a place for people who are generating good returns, and there are people who want middle market. And so banks and investment banks do things like private label to their retail channel, firms like ours and other people like us. So there is some that will come in. Speaking of capital, you've not only had people at the firm for over three decades, you've also had capital partners for over three decades. What are some? timeless lessons from how to best deal with your capital partners and build these relationships over such a long period of time. Doing what you say you're going to do matters and doing it well. Returns matter. So if you're lucky enough to have an

investment strategy which is durable over in our case decades and to have had returns which people find attractive, you're lucky enough to keep getting up every day and having fun doing it again and again as long as we can. And has your capital base evolved greatly over those 30 years? Oh, sure. I mean, our first fund was almost entirely U.S. investors. And in our last bunch of funds were 50% international. And as you've grown, are you able to bring in IR help?

Or are you still managing all those relationships? We have tons of people doing everything. I mean, don't look at me like I'm doing anything. Because a lot of private equity founders will come in and say, I talk to every single person I mean with it. I kind of find that hard to believe. To say that, I'm going to tell you that most of our investors have met many people in our firm, and often I'm one of those people. But we have lots of touch points and are increasingly focused on having more and more touch points and trying to be not just a return provider in exchange for capital, but a thought partner and help some of our partners achieve investment objectives. I have outside of just great returns from our being a limited partner in our funds.

What's an example of that? There are some international investors who are looking at deals directly or they have investments in industries in their countries where we have experience. And so they're curious about a particular industry, a particular manager, a particular lender relationship. We used to look for partners who wanted great returns and could be in a country because We never wanted to invest in a company headquartered outside of the United States, but many of our U.S.-based companies have international operations. So having an investor who's in country or was in a country that one of our companies were looking at an acquisition is super valuable, now we have a friend who can help us find the right lawyer.

Make us be U.S. based, but be local. Okay, who's the right lawyer? Who's the right accountant? What are the cultural norms in this company, in this industry, in that country? Super, super helpful. One of your life lessons you've described as make the call. What does that mean? Well, especially being an introvert, like it's so easy to play with numbers to think this might happen and this should happen.

I was like, call the person, call the person. And I think the world is organizing more and more that way. It's not you have a great idea all the time, especially when you work through people as we do in private equity. It's a relationship with you or with someone else or with an investment bank or a lender, a management partner, a special consulting firm. Make the call. Anything else you need about our bid? We want to buy the company. Don't think they'll call you.

But always make the call because you're building a relationship. As long as you're exhibiting good comportment and making a friend all along the way, always make the call. Does this come from some loss in terms of a deal? It wasn't only that. It was my time as an advisor to companies in the M&A process, just coming for a son of Wall Street. Make the call.

Don't presume anyone's thinking about your deal. It was make the call to just, hey, please work on my deal. You've got other deals you could be working on. Other people are presenting things. Someone's got to do the work at that bank to say, lend your money or that investment banker, we're looking for things in this. Always make the call. How do you get somebody to work on your deal?

Call them up. You make the call. Is it just, hey, I was thinking about you? 30 years ago, it's like, hey, John, we sent you information on XYZ deal. What do you think? Have you had a chance to look at it yet? I'm sure you're really busy. Just making their priority.

Making them focus on the deal. You always want people to try to prioritize the things that are really important to making your investors money and make the call. I remember in the first startup that I started and I was fundraising with angel investors. And my friend who was in sales, I was telling him, I didn't know why this person was investing. He said, just go and have coffee with him. And I was thinking, what else could I tell him? I've told him everything about the business. Why would I go and get coffee with him?

And I went and got coffee. He asked me a couple of questions. I were probably subconsciously in the back of the mind. I answered them and he invested and it just blew my mind that just having an incremental meeting. It's to make the call concept. Have that personal touch, a call, a meeting, a meal. I think that stuff is super important.

And I'll extrapolate and say, in the AI world, the analysis, the pyramid used to be like a rainmaker at the top and a whole partner and a whole bunch of vice president, a whole bunch of associates, and this pyramid is collapsing. That rainmaker is still super important because that's the person making the call with the relationships, but the analytical work is, AI is collapsing the number of bodies needed

to do great analytical work. But it's never going to replace the person who's making the call. It's even more important than it was. Make the call. I also had a former colleague from Goldman. He was there for seven years, a little bit younger, my friend Max, and he taught me this principle of even if it's for one meeting, you go to L.A. and you have that one meeting. The value of having this in-person meeting is always.

undervalued in finance. Do you agree with that? Absolutely. Absolutely. What's the furthest you've ever flown for a single meeting? Halfway around the world. New Zealand? China. China. I've been to New Zealand, too. Australia, China. I went to China for a 45-minute meeting.

Did that pan out well? Yep. If you could go back 32 years ago when you just started American securities and you could give yourself one timeless piece of advice, what would that be. He's a very famous investor, not really private equity on Wall Street, and more in the hedge fund business. And he had people work for him, and he was super successful. And they would often spin out. And when they would leave, they would ask him, what, do you have any advice for me? And he'd say, yes, be lucky early. Because if you're not lucky early, you're out of business. And that's cute. I'm not sure it's helpful. But there's lots of things. I mean, love what you do. Love the people you do it with. These are timelessly.

Because a lot of the failure mode comes in the first couple of years. Well, we have success bias. If you fail in the first couple of years, you don't often get a chance. You're going to be doing something new with new people because that first thing is not going to work. Most people do not reinvest with people who've not done well for them. I've noticed that as well. And maybe on the operation side of the business of the fund, I think about it. How do you make yourself inevitably successful?

And part of that is how you structure. Make sure you stay in the game. the asymmetry of staying in the game is greatly undervalued. Some people get these huge offices or invest in all these things and then they end up two years without a business and they don't realize that asymmetry if that just stayed in the game. If something has made you successful and you keep doing it,

you're more likely to be successful than not doing it, getting distracted by another business or another activity. And so if that's staying in the game, I certainly agree with that. And that's part of this. We just want to put it in American Security one foot in front of the other and not trip, and just keep doing that, hopefully for another 30 plus years.

I notice a lot of people that have had the level of success that you've had, always say, I don't have any regrets. But if I forced you into regret over your career, what would that be? I regret a few people we didn't hire that I thought would be good hires, but we didn't have a consensus around them,

so we didn't. I regret a few people we did hire that weren't working out and not working them loving them out of the firm sooner, I got lots of regrets. We make many mistakes, and we do this in a team-based way, try to recognize our mistakes and correct them as best we can when we realize something is not going right, be it an investment,

be it a colleague, be it a relationship, anything. Michael, there's been an absolute masterclass. Thanks so much for jumping on. Thanks for having me, David. I appreciate the time. It was fun to chat with you.