MSD Partners’ investment edge

Transcript

My name's Gregg Lemkau, I'm CEO of MSD Partners. I joined the firm about a year ago after spending 28 years at Goldman Sachs, where my last job was the head of global investment banking. MSD partners is really two things was MSD Capital and MSD Partners. MSD Capital was started in 1998 really as the family office of the Dell Family. In 2009 we started MSD Partners, which is a registered investment advisor that allows us to take third-party capital. So today we've actually got MSD Capital, MSD Partners. In aggregate we manage about 23 plus billion dollars of capital 16 or 17 for the Dell family. The rest of it being employees and partners of the firm and outside investors.

My personal investment philosophy is very much shaped from where I am right now, which is driving great risk-adjusted returns and that's kind of how we think about things at MSD. Protect capital, figure out how to structure downside protection, and then grow compounded returns over a long period of time. We have the flexibility of having being able to look through cycles and over the long term. And we try to do so across four asset classes for places where we feel like we've got real differentiation. We've got a private capital business, credit business, a real estate business, and a growth equity business. 

 And so what I've tried to tell our team is there's a lot of capital out there in the world looking to invest in deals, and we should try to be investing where we're really differentiating. We have some edge or I like to say some right to win. And if we've got a right to win, that's where we really want to be focused because we can get outsized returns. I think we've got the benefit of having been in the business for a long period of time. So our credit business has been up and running for 20 plus years. Those guys are in the market every day, all day, and have great flow. I say the same for the real estate team.

On the private capital business. You know, we've tried to there's so many places to deploy capital. And one of the challenges that we have is, you know, we can do anything which is great from a flexibility of capital. But it's hard from a like triaging where you want to spend your time. And so we've tried to focus on places where the duration of our capital will make a difference. Your family-held businesses or founder-led businesses are closely held businesses.

And then similarly, as we've built out this growth equity business, we've tried to take advantage of both the position of Michael Dell, the world, and then his network and the network that I built up over 20 plus years at Goldman Sachs to really get involved in the growth equity investing community and mostly go directly to founders. You know, we both have a pretty deep network of founders in businesses and trying to play the card of, Hey, here's Michael Dell, who founded the company in his dorm room 37 years ago and you know, grew it to be $100 billion in all over the world and is still running it. You know that appeals to a lot of these founders who are looking for a mentor and so we've leveraged that as a great deal flow mechanism. 

When I first started at MSD, we talked about growth equity, and Michael and I said, What are the best companies out there that we need to be invested in? I said, Well, Stripe is the best private company out there we need to be invested in, and so let's go invest in them. Michael, you do me a favor and call Patrick Collison. And so Michael called Patrick Collison and lo and behold, Patrick took his phone call and took his money. So it was quite helpful as it is a pretty powerful tool to have, especially when you're trying to access really special companies. 

We've got a very thorough process around how we review investments. You know, we've got a very active direct team, probably 45 direct investment professionals. Any deal we do either comes to the investment committee of the group or depending on the size comes the firmwide investment committee. And I think one of the things that we have at MSD which is pretty unique, is if you're on the investment committee and you vote for a deal, you personally invest in that deal, which makes for a very interesting investment committee decisions because it's no longer like, Okay, I'll vote for you. Did you vote for my deal? It's like, I kind of don't like your deal. And so I don't want to have to invest in your deal. So I'm not going to vote for your deal. It puts a great rigor around the process. And because people are really thinking like investors, not just I'm investing Michael's money or someone else's money, I'm investing my own money oftentimes with leverage on it. And so you really focus back to what we said are the core principles, downside protection making sure I'm not gonna lose my money? And how do I know this is the best use of my capital relative to anything else I have the ability to invest in? 

I like these long-term investments we can make over a long period of time. We can drive value we don't need to be kind of day trading in the market.