EP269: The $350M 30-Year Fund Model

Summary

---

Podcast Summary: How I Invest with David Weisburd

Episode 269: The $350M 30-Year Fund Model

Guest: Brent Beshore, Founder & CEO, Permanent Equity
Air Date: December 24, 2025

---

Main Theme & Purpose

This episode dives deep into Permanent Equity’s unique fund structure: a $350 million long-duration private equity fund with a 30-year horizon, no management fees, minimal debt use, and a focus on alignment with both investors and portfolio companies. Brent Beshore explains the reasoning, the mechanics, and the philosophy behind building enduring value, eschewing traditional private equity tactics in favor of compounding growth and lasting relationships.

---

Key Discussion Points & Insights

1. Permanent Equity’s Structure and Contrarian Model

• Brent describes Permanent Equity as the "opposite of private equity":
  • Unlike traditional PE’s short hold periods, aggressive debt use, and predetermined exits, Permanent Equity aims to own businesses indefinitely, introduces little to no transactional debt, and prioritizes compounding over flipping.
  • “We have the best LPs in the world. They give us their capital for 30 years and so that allows us to buy with no intention of selling the business.” (B, 00:53)
• Compounding:
  • Two forms discussed—steady annual growth (e.g., 12% yields a 2x in six years) and true exponential compounding, where growth rates accelerate by removing “lids” in small companies.
  • “That business is about 7x larger now than it was then because we were able to... release all those lids that we saw in the business all at once.” (B, 02:43)

2. Handling a 30-Year Fund Life

• Convincing Institutions:
  • About 50% LP base are institutions; Brent argues these should have the longest time horizon and benefit from regular cash distributions, which actually exceed what’s typical in private equity.
  • “30 years sounds like a long time horizon, but there’s a lot of cash in the interim. And historically we’ve actually returned cash back to investors faster than traditional private equity.” (B, 04:19)

3. Fee Structure: No Management Fees

• No Fees, Only Carry:
  • Permanent Equity charges no management or portfolio fees—profit comes solely from deal proceeds split with LPs.
  • “We don’t eat unless they eat... no fees of any kind, no reimbursements of any kind... If we do not very well, we work for free and actually lose money in the process.” (B, 04:45 & 05:07)
• Effect on Team & Recruiting:
  • All employees, not just partners, participate quarterly in cash distributions, aligning incentives and offering more immediate upside than classic carried interest.
  • “We’re paying out to our staff quarterly. Everyone’s sharing in that immediacy of it.” (B, 06:42)

4. Debt Aversion and Its Rationale

• Brent’s Approach:
  • Minimal to no debt on acquisitions. Debt can be used post-close for working capital, but most portfolio companies are highly cash generative, and debt’s risks usually outweigh rewards at their scale ($5-15M free cash flow).
  • “If you’re buying...a pool builder in a highly cyclical market...being able to be very responsible if not not using debt I think is a very good strategy.” (B, 08:07)
• Handling Downturns:
  • Debt-free approach allowed quick, opportunistic action during COVID, e.g., growing aerospace business without constraint.
  • “When the airline market goes down 70%...everyone else is using all their time to negotiate with banks. We weren’t doing that... We were highly focused on improving the business.” (B, 08:54)

5. Cyclical Opportunities & Macroeconomics

• On Black Swan Events:
  • “Really kind of generational opportunities about once every seven to 10 years.” (B, 09:54)
  • Expresses skepticism whether the U.S. political and regulatory system will allow another truly severe downturn given government interventions.
  • “I don’t know what it would take for us to have sort of…blood in the streets moment…Not sure if the government will ever allow that to happen again.” (B, 11:25)

6. Winning Deals Without the Highest Bid

• Positioning in Sales Processes:
  • Permanent Equity can’t pay the very top price but offers sponsors and sellers legacy, continuity, community employment, and long-term relationships.
  • “If you care deeply about the business and the legacy and what happens next, that seems like a reasonable trade. But for most people, most people don’t care. And that’s okay.” (B, 15:36)

7. Operator Selection: Island of Misfit Toys

• Culture Fit—The Cell Phone Test:
  • Portfolio spans many industries (aerospace, manufacturing, matchmaking, military recruitment), but the common thread is the people behind them.
  • Works only with leaders where team feels genuine enjoyment of the relationship.
  • “Life’s too short to work with people that you don’t want to work with. …We want people who are playful and lighthearted and don’t take themselves too seriously.” (B, 18:49)
  • Avoids operators who are transactional, ego-driven, or closed-off to feedback.

8. Dealing With People Problems and Difficult Situations

• Approach to Challenges:
  • Gives grace for human messiness, but consistent pattern of negative behavior leads to leadership changes or divestments.
  • “If we get to a point…where there’s a consistent pattern of behavior…Once it crosses that bridge, then either they need to go or we need to go.” (B, 23:24)
• LP Relations:
  • LPs are kept closely informed and trust Brent to make people decisions. Letters disclose challenges transparently.
  • “We’ve developed…trust with our LPs that they know that we’re going to try to do our best. And…we’ll own up to our mistakes.” (B, 25:02)
• Profit Maximization vs. Sustainability:
  • Sustainability and manager wellbeing trump extracting the last bit of profit per deal.
  • “If the manager burns out in year 12…that’s going to be a much inferior outcome versus…being there for another 30 years.” (A, 26:06)
  • “Shame and fear will drive you to about 95%…the only thing that will drive you to nearly 100%…is to genuinely care and love for people.” (B, 26:34)

9. Reflections and Lessons Learned

• Counterintuitive Success of Outside Capital:
  • Brent expected nightmares with LPs but found productive, supportive relationships.
  • “Everyone told me not to raise outside capital…We’ve experienced very little of [the negatives]…I’ve been shocked at how good the partnership’s gone.” (B, 28:12)
• Timeless Advice to Younger Self:
  • Early mistakes: chasing what was cheap, not necessarily high-quality. Now focuses on businesses with sustainability, uniqueness, and strong relationships even at higher prices.
  • “The incremental difference between paying maybe four times for something and six and a half times for something… yields you a business that’s double the quality or more.” (B, 31:04)

---

Notable Quotes & Memorable Moments

• “We don’t eat unless they eat…no fees of any kind, no reimbursements of any kind…Zero. Except for as we return cash back to investors, there’s a split on that.”
  (Brent, 04:45-05:07)
• “Life’s too short to work with people that you don’t want to work with.”
  (Brent, 18:25)
• “You can’t make good long-term decisions with that type of short-term capital.”
  (Brent, 09:08)
• “The smartest LPs in the world know…if you genuinely care for people and take a long-term view, that’s where your greatest returns are going to be. Not grinding on somebody to work another five hours a week...”
  (Brent, 27:32)
• “The biggest unexpected thing for me was everyone told me not to raise outside capital…We’ve experienced very little of that, and I mean at it for almost 10 years now.”
  (Brent, 28:15)
• “The incremental difference between paying maybe four times for something and six and a half times for something…yields you a business that’s double the quality or more.”
  (Brent, 31:04)

---

Timestamps for Important Segments

• Fund Structure & Philosophy: 00:17 – 01:32
• Compounding and Growth: 01:32 – 03:17
• Getting Institutional Investors Comfortable: 03:17 – 04:39
• Fee Model Innovation: 04:39 – 06:31
• Debt Avoidance: 07:05 – 09:44
• Market Cycles & Government Intervention: 09:44 – 12:28
• Deal Winning & Legacy: 12:52 – 16:02
• Portfolio Culture Fit & Cell Phone Test: 17:31 – 18:49
• Handling People Issues: 21:31 – 24:46
• LP Relations & Long-term Return Philosophy: 24:51 – 28:05
• Biggest Surprises & Advice: 28:05 – 32:19

---

Overall Tone & Takeaways

The episode is candid, reflective, and leans heavily towards the philosophical underpinnings of investing for the ultra-long term. Brent speaks with humility and humor (“We pay in rainbows and promises.”), while also being direct about the pitfalls of short-term thinking, poor relationships, and strictly profit-driven strategies. The conversation is instructive for both GPs and LPs considering alternative private market asset structures and for operators thinking about business legacy and stewardship.

---

Transcript

[A]

Brent, let's start with your scale. Permanent Equity today manages roughly 350 million across two long duration funds which we'll get into 50 million in 2017 and 300 in 2019 raised. Can you walk us through your fund structure and what makes your fund structure so different?

[B]

Many ways we're sort of the opposite of private equity. So if you know they have a traditional private equity firm, they know who they want to sell to before they buy, typically they use quite a bit of debt, really as much debt as they possibly can employ, to make the equity look as good as they can. And they have a short period of time to do the work they're doing. So we just have taken a completely different approach. We look kind of first principles at how did people become wealthy? I mean every big business started as a small business. We're not aware of big businesses. They got started because they got flipped to somebody else and new leadership every two, three, four years. You know, businesses take time to compound. And if you can catch that compounding, well, it's an absolutely incredible curve that you can hit and wealth you can generate and life you can live. And so yeah, we're fortunate. I think we have the best LPs in the world. They give us their capital for 30 years and so that allows us to buy with no intention of selling the business. We typically use no transaction debt in our deals. So we will use debt post close in a line of credit or maybe a real estate transaction that helps support the underlying business, typically no debt in our transactions. And we're able to hold these things in a way that allows us to create really meaningful long term relationships and infuse them with talent, take a long term approach to how we're going to reinvest back in the business. And I'm really fortunate to see some really great outcomes as a result of that. So it's a completely different approach.

[A]

Definitely. We'll have to double click on the 30 year fund timeline, which is insane. But before we do that, you mentioned compounding. They use the term compounding two different ways. One is a literal 12% compounding every six years is a 2X. The other one is exponential compounding, meaning every year is a higher growth rate than the previous year. Which, which one is it and which one shows up in your portfolio?

[B]

From a numbers perspective we're talking about the ability to sort of not interrupt that pretty consistent growth rate. You know, when we buy a company we're typically seeing a growth rate, you know, pre buy of, oh probably call it 5 to 12% and then post close, you know, we're able to, like I said, infuse talent. You know, we call it the table stakes of business hygiene. Kind of all the standard things that every small company should be doing well. And I've never seen a small company do everything well. In fact, there's a reason they're small, right? Small businesses don't stay small on purpose. So if they're in a good industry, if we did our job right, we picked well, they're in a good industry and they've been at it for a long time and they're still relatively small. Then there's something that's, you know, these lids that are keeping the business down. So as we're able to release those lids, the growth rate then starts to accelerate. And we've certainly seen that our aerospace business that we bought in the fall of 2019, really great time by the way, to get into the aerospace business. I don't know if you know this, but aerospace never goes down. It's always either flat or up. It's except for that little Covid problem that we hit. And you know, that business is about 7x larger now than it was then because we were able to look at the business and say, okay, everyone else is, is negotiating with their banks. We don't have any debt on the business. What are we going to do? We're going to reinvest in talent, we're going to put the pedal down on new ERP system, make all the changes and sort of release all those lids that we saw in the business all at once. And then the results since then have been, have been exponential. So it's fun. I mean, be able to take a longer time horizon is an absolute blast because you're able to do things that no one else can do if they've got short term capital.

[A]

30 year timeline, 30 year fund life. That's pretty crazy. 50% of your investors are institutions. How do you get institutional investors comfortable around a 30 year fund timeline?

[B]

Well, I mean, institutions should have the longest time horizon of anybody, right? I mean, they're able to set a structure where they don't have to get capital back immediately. And the nice thing about our model is we're pretty cash flow heavy, so we're making regular distributions every six months. So 30 years sounds crazy, right? Initially when you hear it, you're like, wait, I don't get anything for 30 years? That seems insane. The reality is that you can see the value of the business compounding over time as well as the increase in checks that you're getting every six months. So we're very cash heavy. Since we're not buying these businesses with debt and the businesses we're buying are very cash flow positive. We're first looking for high probability, high quality reinvestments back into the portfolio. So if there's a place that we especially pre tax, where we can put dollars and generate a great return with high probability, we certainly want to do that first. Otherwise we want to get that cash up and out. I mean, we've got opportunity costs, our investors have opportunity costs. We want to make sure that we give them the option to be able to use the cash however they see fit. So the reality is 30 years sounds like a long time horizon, but there's a lot of cash in the interim. And historically we've actually returned cash back to investors faster than traditional private equity. So. Sounds scary. It's less scary in practice.

[A]

You guys don't charge a management fee. How does that work and how does that influence your decision making?

[B]

Yeah, this is probably the greatest innovation we made. First set up our fund structure. The person who we worked with told him, we said, hey, we don't need the cash. We've got investments that were, that were more than covering the team that we had assembled. Fortunate to be able to have that. And so we said we'd really like to just as closely align us with our investors as possible. And the best way to do that was if we don't eat unless they eat. You know, we joke that unless you can buy beer with it, we don't charge fees on it. And so the way that we do it is no fees of any kind, no reimbursements of any kind. I have to say it like five different ways because people are assuming that there's some cash coming from somewhere. There's no cash coming from the LPs, there's no cash coming from the portfolio companies. I'm going to say it one more time. Zero. Except for as we return cash back to investors, there's a split on that. And so we're able to align ourselves with the investors in the sense of, hey, as we do better, as they do better, we do better. And if we do not very well, we work for free and actually lose money in the process. It's extremely entrepreneurial. I just sort of am morally opposed to making money if our investors don't make more. I mean, I always want to be anything I sell to somebody. I want to be on the other side of it and be able to say, hey, I would buy that if I wasn't doing what I do now, and I would want the structure if I was on the other side of the transaction.

[A]

That sounds philosophically easy, practically hard. How do you pay for your stuff?

[B]

Yeah, we pay in rainbows and promises. And it's incredible how you can scale an organization. No, we, we pay in cash. So everything, if you think about our organization, cash is the lifeblood of our organization. So down from our CEOs up to us and then to our investors, everyone's aligned that if again there's a great place to put cash, we want to generate that high return, especially pre tax and then we get to share in that in every out year. Right? All of us do. If there's not a great place to put cash, then our investors are, our operators are incentivized to send that cash up. They get a percentage of that and then we take it and send it out to our investors and we get a percentage of that as well. And so everyone is incentivized the exact same way, including my staff. The staff here at Permanent Equity all shares in, in the cash flow of the businesses. As we're able to generate more, they have built in pay raises that not.

[A]

Limit you in your ability to recruit. Not everybody could get paid and essentially promissory upside. How does that affect your recruiting and does that sometimes help too?

[B]

Well, I was gonna say it actually, I think it's a huge help. You know, traditional private equity, I mean you're getting a salary and then you're getting a really long dated call option on the future success of the business. Right. I mean it's gonna pay off in eight, 10, maybe even 12 years down the road for us. We're paying out to our staff quarterly. And so as, as the cash hits us, we get it out to our staff. Everyone's sharing in that, that immediacy of it. So it's a really beautiful thing. I mean people, especially their spouses, like it a lot more than, than, than having long dated carry structure.

[C]

I can tell you that you've taken.

[A]

This difficult stance against debt in your companies. Isn't there a right time and a right place to take debt? And why are you so opposed to that?

[B]

I probably sound more hardlined about debt than I am. I think there's an ability to use debt in a very responsible way. I just think in the types of companies that we're investing in. So, so we call it 5 to 15 million dollars of free cash flow. These businesses are lightly professionalized or to some degree not professionalized organizations. There's usually a pretty decent amount of key man risk in the business. These are not businesses that I think are buy, you know, as a whole qualified to use a lot of debt. And I think that it's sort of a lasting vesture of the, the upper market, right the how the KKRs of the world pioneered the buyout that it's kind of moved down market. And look, if you're going to buy a multibillion dollar, tons of assets, multinational corporation, I think you can use debt pretty, pretty well. You're going to invest in software and you have a very consistent recurring revenue streams. I think you can use debt responsibly if you're buying, you know, a pool builder in a highly cyclical market that is beholden to the whims of all kinds of different economic policy, individual buying decisions and it can even be as strange as the weather. You know, I think that being able to be very responsible if not not using debt I think is a very good strategy. The plus side of that is the more cyclicality you can either, you know, debt makes cyclicality to be a problem. Cyclicality can also be a huge boon. And again, I'll go back to our aerospace business. You know, we're the only ones of our competitors that didn't have debt. And when the airline market goes down 70% it's terrifying. Everyone's scrambling. Everyone else is using all their time to negotiate with banks. We weren't doing that. What we were doing is trying to identify the best talent. We were able to buy parts packages for pennies on the dollar. We were highly focused on improving the business. Everyone else is stressed out, everyone else is distracted, everyone else is siphoning off all their cash to go and deal with the stress of it. And we were focused and we were able to again make 10 years of progress in 18 months. And so I think that when we've seen if you're going to be in these businesses for the long term, you're going to experience cycles. There's going to be cyclicality, there's no doubt. And by the way, there's almost no industries that don't experience some cyclicality. And so if you're going to experience that cyclicality, you have to really think about what are the consequences of using debt where you can't take advantage of the cyclicality and how does that compare with the upside you would get by putting the debt on the business, Especially over the long term if your time horizon short, if you're two years, two and a half years, three years maybe of owning these businesses and you try to catch it perfectly. You're saying, hey, okay, we're going to invest. Hopefully there's no cyclicality. Yeah, I mean you can roll the dice and I guess heads you win, tails they lose type of thing. I think it's an incredibly stressful life. I don't think it sets up well for, for good relationships. And I don't think you can make good long term decisions with that type of short term capital. Especially when so much of the, the cash flow of the business is going to serve as a debt.

[A]

The next black swan is unpredictable, but it is highly predictable that there will be one. How often do you see these industry buying opportunities? How often do these come along?

[B]

Yeah, I've been at this thing, I bought my first business in February 1, 2010. So I've been at it for, for 15 plus years now. I would say we see you know, really kind of generational opportunities about once every seven to 10 years. Now the interesting part about is that.

[A]

Across your entire portfolio or is that.

[B]

Within every industry, some industries will become disfavored here and then, you know, so it's like there's really no rhyme or reason. It's just sort of some things get, you know, get wind in the sails and other things fall out of favor. I would say there usually are some big macroeconomic shift. I mean, you use the term black swan, there's usually typically not a black swan event for an industry unless there's major, you know, technological disruption would be sort of a major black swan for specific type thing. You know, we've seen more. You know, obviously Covid was a black swan event and there was a tremendous number of opportunities that arose out of it. The challenge is that for somebody like us who, you know, we keep a lot of cash on hand, we're ready to move quickly. I remember in the depths of COVID we said, hey, there's gonna be a lot of great businesses that for one reason or another are gonna be cash poor and can't get refinanced and they're gonna, you know, are gonna go out of business. And it was so dramatic that obviously the government stepped in with a bunch of different programs. And you know, we went from having one week, we were engaged in a hundred conversations that week with different businesses to absolute crickets the next week once the government released it. I mean, they kind of, you get gone over the top from, from the government, there's not much you can do about it. And I think that's the maybe the question in My mind that I would not have guessed 15 years ago is, you know, will the government ever allow there to truly be blood in the streets? I don't know. It looks like right now that, that our tolerance as a country for allowing businesses to, you know, to go out of business is, is pretty low. Which again, I mean you can make the argument that as a country we don't want that to happen and for very good reason. And I'm, I was all in favor of, of the government stepping in with the ppp, the original PPP program for the small business market. And I think it was extremely effective. But for us, I mean, I, I don't know what it would take for us to have sort of, you know, Warren Buffett esque, Charlie Munger esque, blood in the streets moment where we were able to, to do, you know, 10 years of investing in a year. Not sure if the government will ever allow that to happen again.

[A]

Speaking to people on the political aisle, incumbent rate win rates are over 90%. There's a theory out there, which I subscribe to, that we'll never have more than two years of downturn on S and P because incumbents need to win their next election. And although they don't directly control the Federal Reserve, there's other levers they could push that can make the stock market go up. And every president too has that incentive on a four year basis. But even on a two year basis, it seems like it's unlikely that we're going to have many of those cycles. This is a bit of a contrarian intake, but it at least makes sense to me.

[B]

I don't disagree with you. I mean, I think that again, if you look back to really post 2008 to 2010, government's not allowed any serious downturn to happen for, I mean really longer than about six months. So I mean, we'll see when it happens. I'm sure it'll happen at some point. I hope we've got enough levers to pull that it won't happen anytime soon. And I hope that we're not building up a bunch of risk in the system that we don't realize is there, that releases in a way that we can't control. But I don't disagree with you at all, David.

[A]

You oftentimes are negotiating against private equity firms with portfolio companies trying to buy them. How do you get those portfolio companies to take lower bids from you versus ABC private equity funds?

[B]

When we enter a competitive process, there's usually us and call it three to four more traditional private Equity firms in the mix. And the nice thing is for us, everyone else is kind of battling against each other. And really there's very little differentiation between those groups. I mean, it's just going to be whoever bids the highest. Maybe personality matters a little bit, but it's mostly just it goes to the highest bidder. You know, what we're offering is so different and unusual and really aligns with if you care what happens next to the business. I mean, if you kind of go down the two paths of traditional private equity. You sell into traditional private equity, they're going to hold for maybe at most five years and they're going to be resold to another private equity form or you're going to be sold to a strategic and subsumed up. And so you know that this thing that you've spent, you know, 20, 30, 40 years of your life or maybe even generations in your family will never be the same once you sell the traditional private equity. And that's okay. And by the way, most people frankly don't care. Most people, what they care about is to, to realize the value that that is maximum to them and their family. I don't blame them, I don't judge them. But there's just a real cost to that. The higher the expectations, the higher the price that's paid, the more changes have to be made. The money has to come from somewhere. And so the knowledge that most people have is when they sell the traditional private equity, the world will never be the same for them. For us, what we're able to do is to offer people, especially if you're gonna stay in the business or if you have family members, you can stay in the business if you're a community employer, if you want to maintain a large amount of contin, we're able to offer a product to them that's just wholly differentiated. So whereas in traditional private equity you're going to, you know, be levered up, new leadership team is going to be brought in, you're going to be injected with a steroid needle like let's go to the moon. And by the way, you're going to be resold in three to five years, which by the way, no shade on that. It works us, you know, we're coming in, we're not putting debt on the business. We're able to have no intention of selling it. We're able to keep you as a community employer. We want to keep the leadership team in place, taxed as we possibly can. We want to generate great long term relationships with the leadership Teams we have, we all go want to go win over the long term making good long term decisions. So we're just much more, much more continuity for businesses who want that and that care what happens next.

[A]

A lot of these sellers, so they might sell a company for $200 million and a lot of these people are in the Midwest or in other areas, they can never really spend that $200 million. So they end up sometimes dying with more money than they ended up selling for. And at the late stages of their life, they want to build a legacy so they put their name on a building. The smart, smart owners will realize that the business is their legacy. But if you spend three generations of your family building this organization, that is your legacy. So what, what you could do and the impact you could have on the world is actually the business. They just think of it actually as a lot of people think of it as sequentially versus this is their life's work.

[B]

Couldn't agree more, David. That's exactly what we talk to people about. And look, everyone's got to make a choice and feel good about it. No worries at all if you choose to sell to the highest bidder. And by the way, we're not, it's not like we're paying dramatically less than other people. We're just probably going to be the very highest bidder. So Maybe there's a 5, 10, 12% difference in what we're paying depending on the situation. If you care deeply about the business and the legacy and what happens next, that seems like a reasonable trade. But for most people, most people don't care. And that's okay.

[C]

When you want more for your business, start with Northwest Registered Agent. You could build your complete business identity in just 10 clicks. In 10 minutes, everything you need to launch and protect your business is all in one place. Your business identity is more than what your customers see. It's also legal paperwork, website security and compliance. Behind the scenes with Northwest, you get more more privacy, more tools and more guidance. Northwest Registered Agent has been helping entrepreneurs for nearly 30 years. They're the largest registered agent LLC service in the US with over 1500 corporate guides who know your local laws. You can form your business for just $39 plus state fees. Get an LLC domain name, business email, phone number, business address, registered agent service and compliance tools. Again, all in 10 clicks and 10 minutes. Northwest also protects your identity by letting you use your business address on state filings and with mail forwarding in 20 states. They'll scan your mail and upload it securely the same day Privacy is automatic. They never sell your data. Don't wait. Protect your privacy. Build your brand and get your complete business Identity in just 10 clicks and 10 minutes. Visit www.northwestregisteredagent.com paid invest and start building something amazing. Get more with Northwest registered [e-mail] paid invest.

[A]

You describe your portfolio as an island of misfit toys. Where.

[B]

Yeah, I joke because you, you look at our business and we've got aerospace, we've got manufacturing, we've got construction, we own highest in matchmaking firm. So executive search, but for love, we've got military recruitment. We're all over the board, we're all over the country. So we have 16 businesses literally from coast to coast across different industries. And I think when most people look at our portfolio, they're like, what in the world is the common theme there? Like, why do you own all these disparate assets? And our answer is that there's a combination of the people side which is the most important for us. We really just get to know people and we really love the that we got to get involved in. And we find that every industry has some sort of niche that's detected. And when we're looking at what we want to buy in a business, we're looking at typically, what's their margin? How quickly do they get paid? And can we work with the people? Do we enjoy picking up the phone? We always use the cell phone. Test is if the CEO or the seller calls us, are we cringing before we pick up the phone or are we excited to pick up the phone?

[A]

What is that? And how do you unpack that?

[B]

Yeah, I mean, it's just the idea that, like, life's too short to work with people that you don't want to work with. And I mean, look, we're all messy. We're all. We all can be difficult. No one's perfect. But certainly there's. There's people who you enjoy chatting with and you enjoy the relationship, and there's other people that, you know, you cringe when they call.

[A]

Characteristics of people just taken to the extreme, people you really like talking to and dealing with, and people that you really do not like.

[B]

The commonalities of people who we really enjoy working with are earnest and sincere in what they do. They have fun. We have fun. We love what we do. I think I have the best job in the world. We want people who are playful and lighthearted and don't take themselves too seriously. I mean, we deal with serious things right There are real consequences, decisions we make. There's a lot of people's livelihoods on the line and there's a way of taking things seriously without taking yourself seriously. And so we want to work with people who we can enjoy. Like when we go visit them, we go out to eat, we have fun, we're maybe even go to a ball game. We have a really enjoyable time. We enjoy the business itself, we enjoy chatting about it. It's not like drudgery, it's not, it's not a stressful, a difficult thing to talk about, even, even hard things. We're able to deal with them in a way that's respectful and enjoyable and people are self aware and humble about what they're doing. So I say that's what we're looking for. Where we get into trouble with people is when it is just a transactional zero sum game where life is not meant to be enjoyed, is meant to be grinded through. Look, we have a job to do. This is serious business. I'm a serious person, big ego, I need to get my way. I'm the smartest guy in the room. There's nothing you can tell me that I don't already know. I don't need any help, especially from you. It's that sort of closed off, shut down, highly protective, prideful mentality that we just don't have a lot of tolerance for. I mean, look, we all have our moments, right? Like I don't know about you, but for me I get feedback. Sometimes it makes me bristle. I'm like, oh, I don't want that, right? And I can maybe react negatively. I'm going to come back and say sorry, right? And I mean at the end of the day that's what we want is we want to find people who even at their worst come back, say sorry, let bygones be bygones, we move on and actually let it strengthen the relationship.

[A]

You don't want people that are, you're walking on eggshells that you have to be a different version of yourself. You can't be a real version because A, that's not a great way to live and B, that actually constrains the opportunity side of the business because you want to be focused on the business, not on the operator's ego around the business. So it really takes away the degree of possible outcomes for the business.

[B]

Amen. I mean, it's extremely stressful to have to remember who you need to be. Man, I don't wanna live life like that. I can't keep things Straight, I'm not that smart. Like, if I'm. I just wanna be me, and I want them to be them and not have to hide and shade the truth and try to pretend to be somebody they're not. I mean, the amount of intellectual overhead and emotional overhead that that puts onto the relationship is. Is awful.

[A]

And I'm curious because I'm an immigrant, so I've had to deal with a lot of different personalities. And I've always seen that as a luxury, getting to choose who you pick with. But now I'm starting to see some inkling where the people that you could be yourself around and the people that you could be a true partner with, you end up getting these power law outcomes and these great outcomes with those type of people. Do you find that to be the case? In other words, are these difficult to deal with people? Are they just a pain that you have to stomach at some point in your career, or are they actually a constraint on the results of the business?

[B]

It's probably a little bit of both. I mean, look, we're always going to have difficult people. I mean, there's always going to be difficult situations. And the reality of life is, you know, people are going through extremely stressful situations and they're coping with it in some challenging ways. I mean, we've dealt with addiction issues in our portfolio. Well, you'd never expect. Their back gets injured, they go on, opioids, can't ever get off, and five, seven years later, no one knows. And they're for all intents and purposes, an addict. And it's really affecting their lives. And they start acting, you know, in ways that you can't imagine, and it doesn't make any sense. And that's the interesting thing about people is people's behavior always makes sense to them. Like, no one's doing the thing that they think is stupid in the moment. It makes sense in their head. I think you got to ask yourself, okay, why did that make sense for that person to do that? And look, we try to approach people with grace and empathy and care for them. I mean, we genuinely care for the people that we work with. And sometimes they're really difficult and we try to love them well in their difficulty. And that's a whole stressful, difficult thing in and of itself, right? To try to not go to fear in the worst case scenario and try to try to care for people when they're pretty unlovable. I would say the norm for us is that we want to work with people who, again, you look at the cell phone they're calling, and you're like, oh, I get to talk with Dave. That's awesome, right? Like, I wonder what Dave's calling me about. It's not like a cringe, like, okay, let's, you know, let's. Let's battle through this. At least I am. And I think most people are sensitive to friction, relational friction. The amount of work you can get done as that friction gets lowered and the amount of success you can have is truly exponential compared to that just even light friction of I don't really want to be on the phone. I don't really want to interact with them. I wonder emotionally what's going to come back the other direction. It's just a tremendous amount of friction in the system that really does slow things down.

[A]

I'm sure you've made these mistakes, we all have in dealing with people that we probably shouldn't have wanted to deal with. What do you do after the fact you made. You've made the investment, you're two years in, how do you deal with that? Do you just stomach it? Do you look for an earlier exit so you have more energy and capacity to do bigger deals? How do you deal with that?

[B]

Everyone's messy. Everyone has their moments. And so we try to give a lot of grace. If. If. Yeah, exactly. And if we. If we get to a point, though, where there's a consistent pattern of behavior and we'll work pretty hard to try to move that person along the spectrum, right? We'll say, hey, as long as we can see progress, there's hope. As soon as we start seeing that person where they're consistently closed off, it's not an enjoyable relationship. We think there's maybe trust issues going on. Once it crosses that. That bridge, then either they need to go or we need to go. I mean, I think that's any relationship. That's just a reality of it. And so if we need to go, then we need to exit the investment. There needs to be a different owner that maybe is better for them, better for their personality, better for their goals and hopes and dreams than we are. Maybe that's the source of their frustration and friction. Maybe we're doing things differently than they would optimally like to do them. Even though maybe we talked about them in diligence, people change their minds. We've had that happen where everyone goes into the transaction saying, hey, this is my plan. This is what I want to do for the rest of my life. And 18 months, two years later, it's. It's not the case. And we got to deal with that. I think more often than not, we're going to probably make a change in leadership at the firm. I mean, we're always buying a majority stake in these, in these companies. And so we have to be prepared to change out leadership. And we have actually a, a really robust executive recruiting team in house for us that this is all they do is help with finding talent. So we feel pretty comfortable that there's a, a lot of people out there who would love to have the opportunity. And you know, again, if, if they're not the right fit, then it's a really a disservice to them and a disservice to the rest of the organization to keep them in the spot.

[A]

There's a famous quote by Sam Zell, Business would be easy if it weren't not for the people.

[C]

Are your LPs sympathetic to these positions.

[A]

And these sales that you have to do internally if there's a wrong, if there's people issues? And how do your LPs look at this, these business decisions?

[B]

Again, we're really fortunate. You know, we've got deep relationships. You can imagine if your LPs are going to give you 30 years of capital, it's probably going to be a different relationship than your traditional LPGP relationship. And so we just have a lot of trust with our, with our LPs. They know that people are messy. They know that especially lower middle market businesses are messy. You know, businesses are nothing more than collections of people. And so they trust us to make those decisions. We keep them informed. We're incredibly transparent about how we're thinking about things, who we're thinking about, what we're doing. There's really nothing hidden from our LPs. And so we've developed, especially over the last, you know, six, seven, eight, 10 years of trust with our LPs that they know that we're going to try to do our best. And we're going to, by the way, we're going to screw up too, and we'll own up to our mistakes. You know, I think one of our P's joked with us. They say, God, I read your letters and I'm so stressed out because there's so much stuff going on. And I get to the end and I'm like, oh my gosh, we did well. You know, it's like that's the ideal for us is to lay all the bad news up front, to be honest about all the struggles and stresses and strains, to explain our logic, how we're trying to think about the business, how we're trying to think about the, the people and, and then ultimately the, the numbers will shake out where they are. And you know, we've been fortunate in that so.

[A]

Because a lot of people think that LPs are trying to profit maximize every single investment, but ultimately they're betting on the manager to produce returns over many years. In other words, if the manager burns out in year 12, even if they get that incremental 5% on investment, that's going to be a much inferior outcome versus the manager being there for another 30 years and delivering great returns.

[B]

Yeah, and I don't think that maybe it's an either or. I was recently talking with a psychologist who deals with the US Olympic teams and he made this really interesting comment. He said that shame and fear will drive you to about 95% of human performance. And the only thing that will drive you to nearly 100% of human performance is to genuinely care and love for people. And I thought that was a really interesting statement. And they're actually trying to think through how do we, you know, the old school coaching method of, of, you know, the coach yelling, getting in the face of the quarterback and you're nothing. And you better, you better get out there and work harder and like, you know that like sort of, you know, the shame is going to fuel the best success. I think that's an outdated concept and I think that the smartest LPs in the world know that the LPs that at least we deal with on a frequent basis, they're delightful humans who care about us and care about the people in our portfolio and they're encouraging us. I mean, you know, we've dealt with some pretty hairy, difficult situations over the last five years. We've had horrible diagnoses in the portfolio. We've dealt with some, some betrayal issues that you never would have guessed. And every single time our LP step up, I'll get personal calls and they'll say, hey, I read the letter, I read your communication man. How are you doing? Are you doing okay? I'm sure this is stressful. Are you making sure to spend time with your family? So I don't know, you know, I think that we're. Again, we select because of our time horizon and kind of who we are. We select for a very different grouping of LPs. But RLP's I think are of the mindset that you genuinely care for people and take a long term view. That's where your greatest returns are going to be. Not grinding on somebody to Work another five hours a week and toiling away and being stressed out and, you know, unhealthy and terrible relationships. That sounds like a recipe for disaster and a blow up on your hands. Not, not a recipe for incrementally good returns.

[A]

From launching your first fund to now running a $350 million fund with a 30 year horizon. What's been the biggest surprise for you?

[B]

Everyone told me not to raise outside capital. So you got to remember I kind of did the inverse of what I guess most people do. Most people take other people's money and then make money with it and then capital back and, and, and just, you know, have their own family office. You know, I may have had the world's smallest family office. I mean, the first business I ever bought back in 2010, I bought with an SBA loan. I asked my new, my newly married wife to sign a personal guarantee. She's like, what's that? I was like, oh, don't worry about it, it'll be fine. You know, thank God it worked out well. Still married, we have four kids. It's awesome. Celebrated our 17th year of marriage, but it was all my capital. Those first four or five deals were all internal capital, so we didn't take any outside capital. In fact, I remember when we were raising first fund, yeah, we encountered some difficult LPs and you know, the dynamics between capital seekers and capital providers drives me crazy. Like the norm seems to be. It's like there's this weird power imbalance and I just, I just tried to remind them, I'm like, I don't need your money. Like we're doing great on our own. Like I don't have to raise any outside capital. And it's really nice because then you just get to enter into a mutual partnership. It's like, look, I want to be respected and I want to respect you and I want us to be on equal footing. Like, I want to serve you as an LP incredibly well. I want to treat you well for the long term and I want to be partners for a very long time. But look, like I don't have to take your money. And I feel like that we've always had that attitude kind of along the way. And so the kind of. The biggest unexpected thing for me was everyone told me not to raise outside capital. You have to deal with difficult people. It would, it would stress you out, they'd be constantly harassing you, they'd be second guessing you. We've experienced very little of that, and I mean at it for almost 10 years now. Of taking outside capital. And so I've been shocked at how, how good the partnership's gone. I've been shocked at quality people we've attracted. And really, if I'd known what I know now, we probably would have taken outside capital sooner. But I just heard horror stories and I'd have. Everyone, basically, almost unanimously everyone told me I was a complete idiot for taking outside capital if I didn't need it.

[A]

Grass is always greener. If you could go back to 2010, when you first started investing in this structure, what's one piece of timeless advice that you would have given a younger Brent that would have either accelerated your career or helped you avoid mistakes?

[B]

Early in my career, you know, I didn't know much and so it was really just a matter of resting in the only thing I could, I could see, or I thought I could see, which was value and really cheapness, not value. And so I did a lot of things early in my career that were cheap and not good, long term sustainable. I mean, I always think about, you know, if value is sort of the combination of price and quality, right? It's the kind of the curve of price and quality. You know, I started out, and if things are usually cheap for a reason, and I think that we focus too much on being cheap and expecting there to be that high cash yields, at least initially, would sustain for a long period of time. And I think there's, as we've gotten more mature in our investing, we kind of moved up the value curve and we're looking more for quality in businesses than we are for cheapness. These days. We still are relatively value oriented compared to traditional private equity. But I think that there are the incremental difference between paying maybe four times for something and six and a half times for something, paying that extra 55, 60% in terms of the difference in price yields you a business that's double the quality or more. And so I think that we always want to be exploring where we are on that value curve. And I would probably have told my younger self, like, really be thoughtful about the, the, the feel of the business. Beyond the cheapness of the business, there's a feel that you can get of how sustainable is the business, how, how thoughtful and high quality are the people that are in existing leadership. What are the relationships like in the vendor relationships and customer relationships. And I think this is where, you know, I used this heuristic earlier, but, you know, the quicker you get paid and the higher your margins, the more important you are to your customer. So if you know David, if you and I were negotiating and you said, hey, I'm going to put this thing out to 30 people, Brent, you're one of them, chances are you're probably going to get payment terms and you're probably going to grind me down on margin if, you know, conversely, if you said, hey, Brent, we really need you to do this for me, you are the best in the world at what you do. You're one of few people who can do it. And I say, yeah, David, I mean, I'd love to work with you. Here's the price. And we get paid up front. You're like, yeah, no problem at all. Sounds great. That's a totally different business dynamic than the other. And so there's a lot of businesses that are at scale out there. They're really just cheap commodity businesses that are extremely flimsy and easily replaceable. We don't want to be in those businesses. We have been in those businesses in the past. They're no fun. Relationships are stressful and strained. And really, we've enjoyed moving up the value curve and getting into much higher quality relationships.

[A]

Thank you, Brent. This has been absolute masterclass. Looking forward to sitting down soon in person, continuing conversation.

[B]

Hey, thanks a lot, David. Appreciate you having me on.

[C]

That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find it valuable or leave a.

[A]

Short review wherever you listen.

[C]

This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.