Megafund Capabilities on a Mid-market Budget w/ Gryphon's David Andrews

Previously on Tripowder, David Anders, co-CEO of Griffin Investors, shared by he believes we've entered one of the harshest cycles in private equity history and when he expects the industry to come out of it. Today in part two of our conversation we turn our attention to operational excellence. Griffin was an early pioneer here long before operational value creation became the industry standard. The challenge for middle market firms is how do you build shared services and capabilities of the large firms. Since the mid-90s they've been recruiting CEOs, functional specialists and even organizational psychologists. A blend of talent most middle market firms wouldn't even contemplate. We have an opt-trip that now has 40 employees in it and we've 160 plus employees for an 11 billion AUM firm. I'll ask David to take us inside their 40-person operating team and show us how a unique mix of talents could give Griffin a competitive edge, particularly in a downturn. I'm Hugh McArthur, chairman of Baines Global Private Equity Practice and this is Dry Powder. I'm fascinated David to go back to this ops group idea, especially the fact that for a firm your size you have 40 people on the payroll, which is an awful lot in my experience. If I were to peer inside the ops group, if we had photographs of the people in there, what they're doing, what would be on those photographs in terms of roles, capabilities, what would I find? Well it's really a great question as another aspect to it. That's been a journey for us but we really believe we've achieved it in the last three years and that enables us to enjoy the most healthy exit market that usually exists large market private equity. That's been different in this extraordinary cycle as we know. To get to your question on the ops group, we have a combination of former presidents and CEOs, about a dozen of them, and then we have functional experts in areas where we consistently find the need to run the same plays in these under-resourced middle market companies, even when they're owned by larger market private equity firms before us. So we have Finance and Accounting. We have Talent Acquisition and then we have HR as well as Organizational Development. OD, we are from the land of fruit nuts and touchy feely in San Francisco and we practice on ourselves personal and professional development and our companies eat it up. We have four PhDs or masters, professionals in that functional area and it's made a huge difference. The last area I'm really proud and excited about is AI Functional Expertise. We've been working on this for a couple years here and finally this year we landed on being able to stand up a team. It's led by a man named Pavan Aurora who joined us in May, formerly a partner at Cerberus, overseeing 40 people in their technology group, and then most recently as an operating partner in our technology solutions and services industry, we were able very fortunately add a partner from Apollo where he was overseeing their data analytics and tech services practices, if you will. So we aspire to be one of the best, if not the best, in the middle market and AI and proven results. We're actually having this coming week, a 55 minute zoom with them presenting to our LPs about what we're doing with companies right now. And it sounds like some of these functional experts are these four PhDs in organization and design and culture and those are actually welcomed by your portfolio company CEOs. Incredibly so, yeah. It's really interesting. I don't get to do this as much anymore, but one of my favorite days in the past is when I was able to go to our two day kickoff meetings with our portfolio companies, which are very processed or in the first day is touchy feeling. And it has within it an exercise where we have up on the wall, the use of our discs and our HBDI, another survey that measured how your brain works. And the most senior partner in the room is supposed to get up there and then share their development plans with this team. And you talk about being authentic and disarming and sincere and they're looking around the room like my see you have never seen yet one week in his life. Right. So that kind of opens it up. Right. Yeah. And then it's a talent of those people in an ethical duty that they maintain confidentiality as they get to build trust with these people and help them become better managers and interact together better. And frankly, we believe the neat thing about is better people, better parents, better spouses, better members of their community. Talk to me about the culture. How does this all work? When you put this this soup of people together, what kind of a culture do you get? And how would you describe what's going on as your advantage inside of Griffin and some of the challenges of melding all those pieces together? Yeah, it's very complex. It's never done perfectly. Every situation is unique. And I want to clarify, it's one class citizenship and it is a deal for the ops partners know that and the deal partners know that they really haven't run anything of their lives most of them. Okay. Yep. And it's that mutual respect. They have crucial conversations. It's the culture of team orientation, authenticity, no hubris. And you can test this stuff. People's orientations. You can look at their backgrounds. But we tell people regularly, if you're not process oriented, team oriented and end personal development. Don't come to Griffin. But what we have found, this has become easier to put portfolio companies because like my first partner will lend OG people and this stuff was used in evil ways in the big companies. The younger generation, you know, draw lines CEOs now in their 50s, they know how powerful it is to improve your team, build your team. It requires a process that people understand it's talked about and reflected and it requires review systems where we put a lot of time into our annual planning processes and it's it's people's performance bonuses are based 75% on objective events and 25% on soft skills, development, cultural contribution, etc. And there's 360 reviews that support that. So it's not like one team's got stamp or grade inflation and others got some really hard university grades. And it really works. Well, clearly it really works. It's just an extraordinary experience listening to you describe your culture because having kicked around this industry for over 30 years, I rarely hear people talk in the kinds of process and organizational and talent terms that you do when describing the culture of their firm. So I think it's an interesting riff on kind of what's going on and it's rare. And maybe I'll finish David by asking you, you know, you're clearly been at this for a very long time. You've had a tremendous amount of success. You've got a tremendous amount of humility about your success being willing to admit that that you've made mistakes from time to time. But Griffin is doing fantastically well. What excites you the most about this moment in the industry's history? We've talked a lot about the stresses and the problems and the issues and those are always going to be there. And it always seems like somebody says, well, you know, the bio thing's going to be over because of XYZ and the resiliency of this industry as you well know is incredible because it's never over. It just seems to some way somehow plow on and do even better. What are you excited about when you look forward? Q, I just can't help but tell a story in 1992 or three. I'm in a restaurant bar in New York and a guy outside of finance says, your industry dead. What are you doing? I said, right. I don't think it's dead. So it's a cyclical industry. There will be more capital overall around the world in a few years regularly investing. I hope that the processes of investing improve in terms of the analysis of realized returns versus unrealized. I hope. And this is where I'm a little naive, maybe being a Fresno guy, that the weave a thing that can exist between GPs and LPs is less. There are structural reasons that exist, especially with huge money and big bureaucracies, but we're all long-term partners and we need to think in a long term and support each other through that. So I'm excited about that. I'm excited about I'm scared to death of and I'm more excited about AI. It is transformational in a ways that we have not seen. The speed of it occurring is pretty profound and the execution of it is a lot harder than you might hear at. of Michael Milton Panels, okay? - Right. - Right. - So I'm excited about that. What that's gonna do to us with our companies. It's one of my senior friends at TPG once said, "You know, I like about your business. We're kind of driving tankers. You're doing speedboats. You can adjust them more." Now, let me tell you, speedboats and rough waters, which we've had, can be tough. And then the Warford talent has been the biggest single challenge we had of getting professional, large market trained CEOs and CFOs to come into the company as we buy and who are people are still prepared to roll their sleeves 'cause a lot of them met those days of past. I think we'll be back to a more normal dynamic in that and a greater appreciation for the legacies these guys can help build and gals in these size companies. Well, David, I wanna thank you for coming on the show today. I'm sure the audience got a tremendous amount out of it. I know that the energy and enthusiasm that you project is really fantastic, particularly in middle market buyouts. I know that I learned a lot. I am now convinced me I'm a glass half full guy. Of course, I run a business inside of Bain II, so I have to be, but it's a UNI, a very simpatico on viewing the future. - It's a long-term-oriented business. We always, it always has been, it always will be. We gotta keep the thing. Thank you so much. You really enjoyed it. (upbeat music) I'm Hugh McArthur. Thank you for listening. (upbeat music)