Ed Elson (4:03)

Can we just go through some of the examples of infrastructure assets? So airports, airport terminals, I would imagine like plumbing, maybe utilities, like what, what are we?

Michael Doral (4:14)

Utilities is a good example. I'll tell you how it, I'll tell you how it came about and that'll pick up some of the, some of the assets. So for decades and decades these businesses were mostly government owned. And in the late 80s, early 90s in Australia, by the way, my accent as you picked up is Australian. A lot of folks in the us.

Ed Elson (4:36)

I don't actually think anyone could have.

Michael Doral (4:37)

Guessed, they think I'm a Brit often here in the us, which people think I'm Australian, which you would find quite offensive. I find it quite flattering actually. For those who don't know, we're a bunch of Aussies, a bunch of criminals who came from Great Britain.

Ed Elson (4:53)

We sent you that.

Michael Doral (4:53)

Right, exactly. So you'll find a lot of folks in this infrastructure game have Aussie accents. And the reason for that is that the asset class emanated out of Australia originally. And so in the late 80s, early 90s, a bunch of the Aussie state governments started to go bankrupt or pretty close to bankruptcy. And so they began to sell off these businesses that, you know, up until then had been government owned. And so it started with toll roads and airports. And there's a company in Australia called Macquarie which is pretty well known now globally. That's where I started my career. Yeah, but they were really, you know, Johnny, on the spot in Australia when this started to happen and they were unbelievably clever about it. So the state government started to sell off these, these assets. Macquarie didn't have the capital it would need to go and buy an airport or buy a toll road. And so a good example is Sydney Airport was sold in mid-90s, late-90s, something like that. And so what Macquarie did is it said, we don't have the money, but we love this asset. We can see how the, the, the moat around Sydney Airport is enormous. You, if you want to travel in or out of Sydney, you're going to go through that airport. And so what they did is they went and they IPO'd a cash box. They said, look, we're going to bid on Sydney airport. So subscribe to this listed company that has nothing but, you know, the opportunity to go and bid.

Ed Elson (6:31)

Sounds kind of like a SPAC in a way.

Michael Doral (6:33)

It's exactly like a spac. A special purpose spac. Exactly right. And so Macquarie was successful in doing that. And then so they had this airport vehicle which could go around and buy other airports. And they did the same thing at toll roads, they did the same thing in utilities, they did the same thing in communications infrastructure, things like cell phone towers. And they really, on their own, established this asset class as a opportunity for private capital to come in and invest in these, you know, what up until then had been government owned assets. And they took that to Europe and they took it to Canada and they ultimately brought it to the us which, which is how I landed in the us. But it's all those essential services businesses, airports, toll roads, utilities, provision of food, provision of communications. And primarily it sits in three different industries. Energy, so it may be oil and gas pipelines, it may be green energy, wind turbines and solar, et cetera. So that's one category. Communications infrastructure, data centers are sort of asset class duo at the moment within infrastructure. But you've got cell phone towers as well, you've got fiber optic cables, things like that. And then the third category is transportations, rail, toll roads, port assets, port related assets, logistic assets. So they're the three broad buckets. And what's particularly interesting about those three buckets at the moment is you've got three pretty big mega trends that sit behind them. So on the digital side, it's pretty obvious you've had massive increase in consumption of data over the last two decades or so. It's grown at something like 50% compounded per annum. And then AI has come about the last two years and just put, you know, fuel on that fire. So you need enormous infrastructure to support all of the data that we're consuming. Again, whether it be data centers, whether it be fiber cables, whether it be cell phone towers, all that stuff that we take for granted when we use our phone or we go and stream on our laptop or whatnot. On the energy side, you've got all the energy transition going on. So you've got a huge mega trend going on there. And frankly you've got to upkeep all the traditional energy as well. And then on the transport and logistics side you've got all this friends shoring and reshoring that's going on. So you've got massive changes in the way that our supply chains and logistics are working as a consequence of some of these geopolitical fractures that you see around the world. So, you know, from an investment standpoint, a very boring asset class, but you've got these pretty big macro trends that are providing tailwinds for those assets.

Ed Elson (9:38)

Yeah. And also, I mean everything that you describe there, it's just so essential to the economy. Like every, I mean the energy and the data centers, like this is the stuff that basically keeps the world running. And I guess that's why I'm a little surprised that it was kind of new that you showed up and you said, I'm going to only be investing in infrastructure and infrastructure assets. I mean, I just would have thought that these are the kinds of investments where everyone's like, oh my God, we got to try to own the data center, we got to try to own the power plant or whatever it is.

Michael Doral (10:17)

Yeah, it's so fascinating. So, you know, we've had a private equity asset class for years and years and years. You know, it started really in the US from, you know, KKR would have been one of the earliest and Blackstone and Apollo. And so that's an asset class that's developed over years and years and years. And then at the other end of the spectrum you've had the credit asset class and private credits developed, you know, again over decades and decades and decades. But there wasn't much that sat in between those two in terms of what private investors could get access to. And that's frankly where infrastructure sits. It sits at the lower risk end of infrastructure. It has a lot of credit characteristics. So you know, what can you do with a long term credit investment? You can sit down there and you can write out your cash flows for if, you know, if you buy a 30 year government bond, you know with certainty what your cash flows are for 30 years. If you go and buy a, you know, mature toll road or a mature airport, you can't write exactly what your cash flows will be for 30 years, but you can, you can sure forecast those with a big, big degree of accuracy relative to say, if I'm trying to forecast what Google or yeah, you know, one of, one of those more exciting companies might, might do. And so it's got a lot of bond characteristics. At the other end of the spectrum, you've got things like say, I think a data center is a good example. Or where you've got, these days, you've got nice contracts on data centers. So, you know, Microsoft or Google or Amazon will these days give you a 15 year contract to be in your data center. And so not to the same degree you can with one of these airports or mature toll roads, but you can have some decent degree of maybe what your worst case outcome is because you've got that 15 year contract sitting there. It's got some private equity characteristics as well. So there was just a part of the investment spectrum, I suppose, that was there overlooked by private capital. And that's what Macquarie, you know, identified in Australia and exploited. And pretty quickly, once folks had exposure to this asset class, a lot of excitement grew around it. You know, when I turned up to the US, I got here in 01. So I've been here for, what is it, 23, 24 years. And I was, to be clear, I was a young whippersnapper, I was 25 or 26 years old or something like that. And so there was a lot of education we were doing around the us we were going and visiting pension funds and insurance companies, big institutional investors. Yeah, really educating them on the characteristics of this, of this asset class.

Ed Elson (13:09)

You're an analyst at this point. What, what is, where are you?

Michael Doral (13:12)

I'm a, yeah, one step, one step up from an analyst. But, but you know, there were six people in that office and you were the jack of all trades. First. The first thing I ever did was a railroad investment in the US and we had a client, we, we were scraping around for clients in those days, you know, we were brand new to the U.S. no one had heard of Macquarie. Were all Australians, so brand new to the US and so we had a client, it was literally a management team who wanted to buy a railroad out of bankruptcy. And my boss came to me and said, hey Mike, this is yours. I want you to go and help this guy finance, you know, I want you to help him raise equity for this railroad, help him raise debt for this railroad, just help him do the whole thing. I said, oh fantastic. I said, do we have like a list of equity contacts I can call to start this off and a bunch of lenders I can call to get this going. And he goes, yeah, we've got this fantastic service called the Internet. So that was a little bit of what I was thrown into over here. So, so, you know, I did that entire transaction on my own. I did the modeling for it, just.

Ed Elson (14:24)

At a very basic level, you're trying to figure out how can we raise the money to, to purchase, to make the investment and also what are the returns going to be. And that's essentially you got it and.

Michael Doral (14:35)

You'Re modeling it and you're negotiating a purchase out of bankruptcy. So you're trying to understand the bankruptcy laws. You're doing it all. And I remember I went to. So I didn't know what I was doing. Okay. To be quite clear, I knew the modeling part of it I'd done, you know, I knew that quite well. Yeah. The raising money, I'd never done it before. I literally got on the Internet and looked up private equity firms and started calling around. Wow. Raising bank debt. I'd never done that before. I remember.

Ed Elson (15:03)

And by the way, this is the kind of stuff that today probably takes like maybe a 10 to 15 to 20 person team to do all the diligence on all of that stuff. And you're basically just doing it on your own 25 year old.

Michael Doral (15:14)

It takes years and years of. It's crazy. It actually doesn't take years and years of training. But the way we set up ourselves in these banks, it's so structured. Yeah. It takes years and years to get to this level.

Ed Elson (15:22)

Right.

Michael Doral (15:23)

So one of the great fortunes I had in my career is I just got thrown into this. Nothing special about me. I'm just happened to be, you know, in this little, little, little team with a boss who had a bit of trust and gave me all this, all this rope.

Ed Elson (15:35)

Yeah.

Michael Doral (15:35)

And, but I, I went to my first bank meeting and you know, I'm the advisor to the client. So the client's looking to me for, you know, to guide him through this process. I didn't know what the hell I'm doing. And, and the, the, the bankers, they said to me, hey, is this going to be a, a club deal or an underwritten deal? And what they mean by that? I didn't have a clue what he meant. But what they, what they mean by that is if it's a club deal, I forget, Maybe we're raising $100 million of debt at the time. If it's a club deal, it means, hey, let's go and club together three or four banks and they'll put in 25 million bucks each together to get to 100. So not one bank is taking on all the risk of the 100. If it's an underwritten deal, then one bank will put up the whole hundred and then they'll take all the risk on the a hundred and they'll subsequently turn around and try and sell down some of their exposure to other banks. So there's a big difference. Yes. And he said to me, is this a syndicate? Is this a syndicate, an underwritten deal, or is this a club deal? I think to myself, what do I say here? I don't even know what those terms mean. And I said, oh, we're open to either. He goes, fantastic. That's what I wanted to hear. I said, oh, good. So it was a lot of that. And I look back at that and, you know, I think, you know, I've listened to a bunch of your podcasts which, which, which I love, and there's a strong entrepreneur, obviously strong entrepreneurial element. Yeah, to, to, to, to them all. And, and I look back at, you know, I'm not a natural entrepreneur. My, my dad's a teacher, my mum's a social worker. I didn't grow up in business, but the time in my career where I learned to be an entrepreneur was that time at, you know, that, you know, seven years, as it turned out, in New York. I was in Macquarie for 10, but seven of those were in New York, where for quite some years we had a little team where you just had to do it all and you were completely out of your depth. And, and you're trying to be like a duck, okay? Above water you' but underwater you're paddling like, like, like mad.

Ed Elson (17:34)

Yeah.

Michael Doral (17:35)

And so, you know, I worked my absolute butt off during those times to keep up, to make sure I wasn't doing stupid stuff. But it puts you in a situation where a. You're on a very, very deep learning curve. But I think most importantly, you learn to become comfortable in uncertainty.

Ed Elson (17:54)

Yes.

Michael Doral (17:54)

You learn to say to yourself, okay, look, I'll take all this on board. Some of it I know, but a lot of it I don't. But I'm going to go away and work it out 100%, you know, and, and it's amazing once you, once you step through the, the threshold of being comfortable in that uncertainty, it's so empowering.

Ed Elson (18:14)

Yeah.

Michael Doral (18:14)

And if I go down the, the road a little bit, you know, before we started Stone Peak, we tried to do the same thing for Blackstone. So I went from Macquarie to Blackstone to Stone Peak.

Ed Elson (18:30)

So you, you came to, came to the us you're working Macquarie, you're kind of thrown in the deep end. And then at 30, you decide, I'm done with working for Macquarie, I want to start my own.

Michael Doral (18:43)

I'm 31, 32. And you know, by that stage I've risen up to be the sort of what they call executive director, which is equivalent of a partner at Macquarie. Yeah. So there's nowhere left to go. And this is in about 2006, 2007. So got here in 01. No one had heard of Macquarie, no one had heard of infrastructure. Fast forward to 06. All the wall street firms started to look at Macquarie and see how much money they were making out of this infrastructure game and how interesting these infrastructure assets were. So in the space of 18 months, every big Wall street firm started an infrastructure business. So Credit Suisse started one, teamed up with GE to start one called gip, which is quite well known these days. Morgan Stanley started one, Goldman started one, Citi started one, et cetera. And you know, for those of you in private equity, what you will, what you'll know is that to go and start a new private equity fund is incredibly difficult. And to do that you need to be a very, very, very well known private equity executive, like a big name. And then you go out on your own as a big name and maybe you'll raise a billion bucks or 2 billion bucks, and that's, that's, that's, you know, rare. And you've got to be very well known to pull that off. So contrast that with what happened in infrastructure. So in infrastructure, because it's a nascent asset class, hadn't existed in the US at all up until that point. It was just Macquarie really. In 0607 you have a half dozen new infrastructure funds start and the smallest one is about $3 billion. The largest one is about $5 billion. And so I was sitting there saying, geez, I've been doing this now for the better part of a decade. I'm pretty young to be starting a firm or going out and raising money, but how often are you going to be expert in a nascent area where people are really starting to get really interested in it? And so I think we've all got ambitions to be entrepreneurial at some time. And I certainly did. And I remember, I remember this very well. I sat there at that time and I said, you know what, I probably am younger than I think I need to be to go and do this, but how often in my life am I going to be in this intersection of an area that I'm expert in and people actually want exposure to it, like never again.

Ed Elson (21:09)

Exactly.

Michael Doral (21:10)

And so what I did is I went around, you know, I can say this now years ago, but I went around to my buddies at Macquarie and said, hey, who wants to do this with me because I didn't want to do it on my own. I had a viewpoint that it was really important to have a partner in starting up something. You can do it on your own. But I'll tell you, like, having been through it, there's so many ups and downs that when I'm down, I need someone who says, come on, man, like puts the arm around the shoulder and when that person's down, he needs me or she needs me to put my arm around the shoulder and pick them up. So I think a partner is really important. So I went around to a few folks and, you know, there were, these were good friends of mine and you know, I kept a yeah, maybe, maybe, maybe, but no one would bite. And then eventually I said, you know what? I don't think these folks are going to do it. And so eventually I went to a guy who I knew a little bit less well and I knew it was a bit risky. Like he could easily turn around and say to Macquarie, hey, Mike's leaving. And you know, I'd be kicked out of the place. But anyway, he went for it. And so what we did is we said, look, let's go and pursue doing this on our own and let's also go and pursue doing this with a partner. And rather than, and when I say partner, I mean a private equity firm. And rather than turn up to a private equity firm and say, hey, can you give me a job? Let's run it like you'd run a competitive process. And so we pulled together a. And we did this in our spare time, weekends, you know, late at night, early in the morning, we pulled together a big, you know, 50, 60 page PowerPoint deck and we went to Blackstone and we went to a couple of other private equity firms and we said, look, this is back in early 2008, and we said, look, we're getting paid our bonus on end of May. So on, on June 1st, we're leaving and we're going to, you know, choose a partner and if it's you, fantastic. If not, no problems. And so it really empowered us whereby we got some competitive tension amongst these various folks who could be our partner. We had a very memorable lunch with Steve Schwarzman. So for those of you who don't know, Steve Schwarzman is probably the biggest name in private equity in the world. He runs Blackstone, he founded Blackstone. I remember this really well. So we were so used to giving this pitch by this time with our little PowerPoint deck. And so Steve came into the. It was A lunchroom just off his office, like, looked like this, where we are. And it was me and Trent and it was Steve. And I went to jump into our pitch. Steve said, put your pitch book away. Enjoy the lunch. Yeah, enjoy the lunch. And he started to chat and he said, have you guys ever started a business before? No, we haven't. And he goes, well, like, how the hell are you going to do that? You know? And this is where this whole time at Macquarie in the Deep end came in. I remember saying, we'll work it out, you know, like, we'll work it out. And I could just tell he, like, he. I think he appreciated that. I think he understood it. Yeah, he understood it.

Ed Elson (24:32)

He.

Michael Doral (24:34)

You know, he's a founder himself and he'd been through all that himself and he tells similar stories to this himself. And so that understanding that you'll just work it out is so incredibly powerful.

Ed Elson (24:51)

We'll be right back.

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Ed Elson (26:16)

We're back with first time founders. I think you and I have both been lucky in that it sounds like you arrived at a place where someone in a senior position just gave you a ton of responsibility and said, go figure it out. You say, how am I going to do it? Use the Internet? I don't know. Figure it out. You'll figure something out. I've had a similar experience as well where with Scott. He says, go start a Podcast, go do this, go do that, just figure it out. And I think there's such an important learning there in one, if you want to do anything great, you're gonna have to do things where you feel uncomfortable and you feel like an imposter and you don't feel like you belong. And I think the perfect example is what you said about, oh, is it a club deal, or is it an underwritten deal? And you say, we're open to either. That's the perfect example. You're never gonna be able. If you wanna do something great, you can't do all of the homework. For those moments, you have to be able to go into a situation and not really know how it's gonna go down. So that's the first learning. And the second learning, I would say, is good on people in positions of senior management for giving responsibility to people. And it's just such a powerful thing if you are a manager or if you're a leader, to say to a young person, I know you don't know exactly what you're doing, but I trust you to figure it out. And it completely transforms people's careers. And it sounds like that's exactly what happened for you.

Michael Doral (27:53)

I wholeheartedly agree with both those points, and I may add one to it, which is one of my takeaways, is do it younger than you think.

Ed Elson (28:04)

Yeah.

Michael Doral (28:05)

You know, I know myself that I truly thought I was too young to do this, but I felt compelled to do it because of the moment in time. But when I look back, I realize it is so difficult to get these things off the ground. It is so financially risky to do it. It takes so much energy and resilience and knockbacks, et cetera. It really is a young person's game. And, like, there are exceptions. Like, I'm not saying, you know, you can't do it if you're older, but I know myself as I. As I go to. Like, you get. You get married, you have kids, you get financial responsibilities, you get mortgages, et cetera, et cetera. You don't have the ability to walk away from it. You can't go without getting a regular paycheck for very long. You're frankly, like, you probably don't have the physical and emotional resilience that you have when you're. You're willing to get beat up so badly when you're young, willing to get.

Ed Elson (29:16)

Humiliated, willing to put in all of your energy and it not really work out. I mean, so many of these things. And by the way, this is why it frustrates me so much. Often in larger organizations where there's this tendency among management to say, oh, we want to make sure you have some more experience, or we would prefer someone who's been doing this for decades than a young person. It's like, actually the young person is so much more. There's so much more energized to get the job done, which can be just as powerful as experience.

Michael Doral (29:53)

Yeah. It's funny you say that. I often say that this to my team, that I think that young energy is underrated.

Ed Elson (30:03)

Yeah.

Michael Doral (30:03)

And experience is overrated 100%. And don't get me wrong, like, experience is very important. Like, there, there are certain situations where you throw a young kid into it. They just, they just won't get it done the way a more experienced person could. Could get it done. So I'm not, I'm not dismissing experience at all. It's. It's really important, but it's, it's. It's. I think generally speaking, it's overrated relative to the young energy. Now, to be clear, like, if you're a young person early in your career and you're given that responsibility, like, another thing I've observed is some folks will grab it and you can just tell they are so nervous about it and determined to get it done right and obsessive as maybe they're obsessed to get it right. That makes me feel comfortable. Okay. Some folks, though, are casual about it and, you know, don't take the responsibility as the opportunity it is or as seriously as it is. And that can be quite dangerous.

Ed Elson (31:04)

Yes.

Michael Doral (31:04)

Because my like you, I can just tell from the way you're talking about it. My strong inclination as a leader is to give that responsibility. It's what I wanted as a person coming through the ranks. I think you want people on the front lines as young as you can get them in as deep water as you can get them. With enough risk management around them, they can't do something that will impair. I won't let someone put money to work, but I'll sure as hell let them go out and find a transaction and do all the execution around that transaction. And I'll let them do an awful lot.

Ed Elson (31:41)

I want to talk about launching Stone Peak itself. So you go to Blackstone and then you spin it out into its own firm called Stone Peak.

Michael Doral (31:53)

We had the lunch with Steve. Ultimately, we got four different offers. Everyone we spoke to gave us an offer, including what's called a private placement agent. Private placement agent is a firm that helps you raise the money Yourself. So that was a do it yourself option. That was my preference, I gotta say. It was, you know, quite flattering to meet with Steve. And he's a unbelievable, and I mean this in a very positive way, salesperson. And so Trent had a preference for Blackstone. It was easy to talk me into doing that. And so we ended up taking this offer at Blackstone. So I remember this really well. We got paid our bonuses. I went and the head of Macquarie, who's based in Australia, very intimidating guy, really. The founder of infrastructure, a guy called Nicholas Moore, one of the smartest people you'll meet, one of the most intimidating people you'll meet. He happened to be in New York the day that we were leaving. So I went, resigned in person to Nicholas. I thought it was the manly thing to do. Probably regretted it halfway through, got marched out and. And then we had four months of gardening leave. It's the only break I've had in my whole career, which we took advantage of. And then I started at Blackstone on November 1st of 08. And to put that in perspective for folks, so when I left Macquarie, Blackstone paid us for the Macquarie shares. We had to give up. Because what happens is you get, you know, shares. Yeah. In your comp, and they don't vest unless you stay. And so we lose the unvested shares.

Ed Elson (33:38)

Yeah.

Michael Doral (33:39)

So I had $3 million of Macquarie shares. There was all the money in the world to me at that time that I had to leave behind. So Blackstone covered it, and Blackstone covered it with $3 million of Blackstone shares. And the way that Blackstone calculated how many shares to give me and Trent was the same is they said, look, we'll look at the average Blackstone share price for the month before I start, which was October of 08, and we'll give you enough shares to give you 3 million bucks worth of shares. So the average Blackstone share price in October of 08 was just over $16. The average share price of Blackstone shares in November of 08 was $3. Okay, so this might. This might be a bit before your time. But that was. We got there.

Ed Elson (34:28)

I've heard of this thing, the financial crisis.

Michael Doral (34:31)

Yeah. So we. We sat there, we thought, oh, you know, thank God. Thank God we went the Blackstone route and not the do it yourself route, because we would have been sitting there for three years, like, twiddling our thumbs if we've done it ourselves. So we went to Blackstone route, and I had the best experience there. So anyway, we. We did that for Two and a bit years there. But the other thing we learned, which is incredibly important for what ultimately we did, is we learned how to fundraise. So, you know, no one's got a better network of investment clients than Blackstone. And so we were able to go and see, really, every pension fund, every sovereign wealth fund, every insurance company around the world.

Ed Elson (35:17)

This is the part that I think is the most remarkable, because when you describe the. How Macquarie got into the infrastructure game, they had to go out and raise a spac, because the problem with infrastructure is it's so capital intensive. That's kind of the big barrier to investing in these assets is you gotta raise billions of dollars. You can't just go out and invest in a data center. You need to raise a ton of money. They're so capital intensive. And so the idea that you looked at that as a young guy who's kind of done a little bit of investing and then said, okay, I could probably go out and raise this on my own. And now you're at $73 billion in AUM. You've got like 300 employees. That's the part that I think we need to hear, is the fundraising. How do you go out and raise that amount of money? How do you walk into a room and convince someone that, yes, me, the young Australian lad who just showed up here, I'm gonna be a good steward of your capital?

Michael Doral (36:24)

It's reps. It's. Anything in life is reps, you know, so, first couple of times you go into it, I'd say the first 50 times you go into a meeting, you're finding your footing, you know, you're getting your pitch down, you're feeling comfortable, you're getting your comfort level up, et cetera, et cetera. So, you know, when I was at Blackstone, I did. I bet I did close to a thousand pitches at Blackstone, something like that. And so through that process, you. And look, I knew the asset class cold. I felt confident we would be good at this. It's something I had a lot of experience in. I feel more at home with the folks who run these pension funds, who are often teachers or come from some background other than Wall Street. That's. You know, I've been in Wall Street a long time now, so maybe it's equal, but I feel certainly as home there as I do with any Wall street person. It took me a long time to get comfortable being on Wall Street. My approach to it, and look, there's plenty of approaches to it, but my approach to it is, obviously, learn Your material, of course, but just go to these meetings, be yourself, and be very transparent about what you have to offer. And if it's something they want, you know, they'll grab it. If it's something they don't want, they'll politely decline and, you know, ask you to come back next year. And maybe things will be different next year, but there's no substitute for reps. And we've had, you know, we've got a bunch of different platforms now at Stone Peak, so I'm certainly not the only one fundraising. And for those who lead these other products who are out there fundraising now as well, my advice to all of them is simply been, all you can do is get out there and do it. Okay? Come to a couple of meetings with me and you can hear how I do it to get a little bit of an idea for what's involved. But then just get out there and do it and you'll have 20 meetings that suck. Yes. You know, like, I had one colleague, Haj, who used to stay. He'll laugh at this because I rib him about it, but he used to start his meetings when he first started fundraising with a story about how his old boss had died. I said, mate, like, I don't think you want to start your piss. The story of death, okay, Come at it a different way. And we laugh about it now because he's. And he's one of the most lovely, personable people you could ever want to meet. Very bright. So he's become a fantastic fundraiser. But his first 50 meetings were awful.

Ed Elson (39:23)

Yeah.

Michael Doral (39:24)

And it comes a little bit to what you said earlier on, that you've got to go through some humiliation.

Ed Elson (39:28)

Yeah.

Michael Doral (39:29)

Okay. And if. If you can't, like, you've got to lose your sensitivity. Like, I couldn't. You know, like, all through my career, I've had people roll their eyes at me or. Or, you know, like, I've been in plenty of. You know, I remember early in my career, I was in a. We had a. We had a Monday morning meeting at Macquarie and where the. The team, with the whole team would sit around the bosses and, you know, probably 30, 40 people in that meeting room. And I remember I got tongue tied in there one time, you know, they asked me to talk about a deal and I tried to talk and it just didn't come out.

Ed Elson (40:06)

Yeah.

Michael Doral (40:07)

And I've had plenty of experiences similarly, like where I completely screwed up or haven't performed the way I wanted to or have embarrassed myself. So what, Dust yourself off?

Ed Elson (40:18)

Is that what you think about when you come out of that meeting, I mean, we've all been there. We've all been in that situation where you're on the spot, you have to perform, and you just can't do it. You lose your cool, you lose your nerves. What did you say to yourself coming out of that meeting? Was it an immediate whatever, keep moving or no?

Michael Doral (40:39)

Okay.

Ed Elson (40:41)

In retrospect, I dust to myself, oh, keep it going.

Michael Doral (40:44)

No, I was. I was so upset with myself. But. But you dust yourself off and you turn back up and you keep working hard. And what I know myself now is that now I am the boss at the firm. When the young folks talk in the Monday morning meeting or in investment committee or whatnot, they're often pretty nervous the first few times they do it. And I'm sure they're thinking to themselves, oh, my goodness, I'm coming across nervous, and I really hate this. And so a lot of people won't talk because they don't want to come across nervous. They'll hold back until they feel that they're confident. And I always have a really soft spot and an understanding for those who do speak up and are nervous the first time, 100%. And because I know that by time 10, you know, they're going to be quite. They're going to build up their confidence over time. And so, sure, they may have had a couple of times where they felt a little bit embarrassed or humiliated or whatnot. But guess what? They're the ones in a year's time who are gonna be that much better. Cause they took the leap.

Ed Elson (41:53)

I respect it when someone's talking and their voice is shaking and, you know, they're kind of. They feel the anxiety. I look at that personally when I'm in meetings. If ever I see that, I think, good on you. Like, exactly what you should.

Michael Doral (42:07)

I couldn't agree more. I couldn't agree more. They're putting themselves out there and, and they're going to be better for. And guess what? You've got to go through that. You have to go through it early in your career because you're going to go through it at, at some point. And it just, it advances you so much quicker than if you, if you don't. And I can tell you now that, you know, what do I care about from my analysts? I care that they're doing their, you know, analysis correctly. They're serious about the job. That's what I. They're working hard. That's what I care about. They speak in a Monday morning meeting or an investment committee meeting and they, you know, I can tell they've just spoken in order to try and get themselves used to speaking. And maybe it's not the greatest point, or maybe it's a bit nervously said, I'm exactly like you. I'm like, good for you. Yes, good for you.

Ed Elson (42:58)

We'll be right back.

Michael Doral (42:59)

Foreign.

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Ed Elson (44:21)

We're back with first time founders. Let's quickly go over how you turn switch out from Blackstone and you create Stone Peak, because sure, this is the founders show.

Michael Doral (44:33)

So we've been at Blackstone two years, haven't raised a dime. It's been directly corresponding with the global financial crisis. Met every investor under the sun. So we turn up the first day of 2011, first day at work of 2011. Those of you in New York might remember that was a hell of a snowstorm year that. That time of year. And Tony James, who's running Blackstone at that time, says to me, mike, and by the way, I was quite close. I still am. I was close to Tony. He'd be a mentor of mine. He'd been amazing. He said to me, mike, it's, we're not doing this. You know, we've been at it too long. We're about to go out and raise some other funds that are going to be hitting the same investors. We don't be marketing into those investors with multiple products. It's all over. Tell me what you want to do. So, you know, that was the only time in that whole journey where I thought, hang on, maybe this is not going to happen. And I spoke to Trent and we came back the next day and said, you know, screw this, let's do it ourself. We said, rather than just repeat what we did and go and see a whole bunch of investors, let's find a partner. So we went and found a pension fund partner to be our anchor and we gave them some special economics in the firm as part of that. So we had an anchor, which is TIA Cref, which is a well known insurance company pension fund. They committed $400 million to us. They gave us a couple of million dollars of working capital. Trent and I put in a couple million dollars of working capital for that. TIA Cref got a profit share in the business for the first couple of years. Not a permanent equity, but a profit share in the business. And then we just went and visited investors again and the difference was versus our time at Blackstone. Firstly, the economy had picked up. You know, we were now two and a half, three years out of the global financial crisis, so people started to have money to invest again. Firstly. Secondly, we met all these investors before and one thing that struck me is that it's interesting. You can go and meet someone once and if you then see them again two years later, even though you've only met them once before, it's such a difference compared to if you haven't met them before, they remember you. And there's something, there's some sense of consistency about it. And so between those two things, we were just able to be successful that second time around. But the big thing for me was I've still got this, my first paycheck, the first time I ever got paid from Stone Peak, I've got it framed on my wall. It felt amazing to me to have this business we started that was now paying us felt absolutely amazing. So our first product was a $1.6 billion US focused infrastructure product. And then over time we grew that product to now it must be around $25 billion is in that particular product or platform. We've now turned it into a global from.

Ed Elson (47:56)

We've talked a lot and I think we've learned a lot about how to excel in your career. And you know, we talked about putting yourself out there, taking risks, going in the deep end, how to succeed as a. I think this is a lot of very useful advice for anyone who's just trying to be successful in their career. But we haven't talked much about the Fact that you are a prolific investor, from my understanding, you never lost money on an investment ever. With Stone Peak. What does it take to be a great investor? What is your investment strategy and what can we learn about investing from you?

Michael Doral (48:40)

So firstly, I'm very fortunate that we invest in a asset class that is so predictable. Okay. And not, not look, not to, not to underestimate or understate the risks. You know, we're investing in equity, there's risk there, things can go wrong for sure. But investing in a electric utility or an airport or a cell phone tower business, it is so much more predictable and therefore easy to understand relative to. If you asked me to go into one of these tech businesses, if you said to me go and value open AI to take, you know, something on the frontier of tech, I wouldn't know where to start. Yeah, I wouldn't know where to start.

Ed Elson (49:28)

And I don't think, and I don't think anyone does. Right. I mean.

Michael Doral (49:30)

Correct.

Ed Elson (49:30)

These are completely speculative and people look, I mean, I think OpenAI is probably big enough and predictable, maybe enough where you can make some informed predictions. But in early vc, I mean, yeah.

Michael Doral (49:47)

The spread of outcomes is enormous, maybe is what we're saying. Whereas for one of these infrastructure businesses, the spread of outcomes is much narrower. And so as a consequence of that, when I sit down and I say I'm in Stone Peak, when we sit down and we project out the cash flows of one of these businesses, we can do a pretty good job of saying what's a realistic worst case? Okay. And we might be wrong. Like it might be a P95, I'm making that up a little bit. Meaning that 95% of the time we'll do better, but maybe there's a 5% outcome that's worse. So, but you're doing a pretty good job of what's my worst case cash flow projection here. And then you can roll that back and say, well, given that, what can we pay for this business and still get our money back if we get this worst case outcome? And so that I think is somewhat unique within equity investing. It's somewhat unique to the infrastructure asset class.

Ed Elson (50:49)

I also think that it is unique for young people who a lot of people think that if you want to be a billionaire, mega successful investor, you've got to be taking these crazy risky bets. You got to be going into crypto and you got to be going into tech. And I think what I would like to understand is where is the alpha in your investing strategy? If you are looking at businesses where you can kind of just predict, okay, these are the cash flows. Then how do you outperform? Where is the upside risk that allows you to get these crazy good returns?

Michael Doral (51:34)

It's the power of compounding is what it is. And I'll give you a great example. So Warren Buffett, I think undoubtedly the greatest investor of all time.

Ed Elson (51:49)

I was gonna ask if you are a value. You seem very much like a value investor and a Buffett fan. I'm a huge Buffett fan. I'm glad to hear it. Okay.

Michael Doral (51:58)

He's amazing. He kills, keeps saying you don't need a high IQ to be a great investor, but I'm telling you, his IQ must be off the charts in my opinion. But take. So Coca Cola is maybe his most famous investment of all time, arguably, okay, maybe in terms of a long time thing he's owned. Now, that's not infrastructure, but it's got the moat that we talk about that's so important. It's a brand moat in the case of Coca Cola, different from say the moats I'm talking about around an airport or a toll road, but same concept. So Coca Cola, which was so successful for him, so he put something like $1.3 billion into Coca Cola back in 1989, 1990. And so far, if you include the value of all the dividends and the shares today, he's got about $35 billion out of that investment. So that's obviously spectacular. But if you talk about that from a return standpoint, it's about a 13% return since 1989. And that's the power of compounding. Like 13 doesn't sound all that exciting. I may have that number slightly wrong, but it's 12, 13, 14, something in that, in that range. But when you compound at 13% for whatever that is, like 35 years, pretty remarkable things, yes. Happen. And so when you look at Buffett's portfolio today, his two biggest exposures are, his biggest exposure is the BNSF railroad, which is the biggest railroad in the US Classic infrastructure asset, something we tried to buy when I was at Macquarie. And his second biggest exposure is Berkshire Energy, which has a whole bunch of different, mostly electric utilities, but electric and gas utilities around the U.S. so Buffett's two biggest exposures are infrastructure assets because I don't know exactly what he expects to get return wise out of those, but if I had to sort of make an educated guess at it, I bet he thinks he's getting a 13, 14, 15, but he's getting that 13, 14, 15 over 20, 3040 years because he knows that BNSF, like regardless of what happens with AI or whatnot, BNSF, the railroad, it's gonna be around in 20 years, 30 years time. All these electric utilities, like they're only getting more important over time. So Buffett's choosing assets where he's got this great saying something like he wants to know that he can go away for 10 years and come back and this business is still going to be there. He's going to feel good about his investment. That's the, that's the magic of this infrastructure asset class. And so, you know, how do you outperform? Well, candidly, the best way to invest is just to find something at a price you like. That's going to compound. That's the best way, I think, to invest, which is what infrastructure offers to you. Now the other nice thing about these infrastructure assets is that because they do have natural moats around them, they can be poorly managed, but they'll still survive. So in a normal business, you manage it poorly. The better management teams, the better businesses will drive you out of business. Yes, but I mean, you've been to JFK airport. I mean, it's a disaster, it's a mess, you know, but it's still there.

Ed Elson (55:41)

You know, like I still use it.

Michael Doral (55:43)

Still use it. Okay. And so one of the beauties then is that often when you buy these businesses, you find that they are under managed because you'll survive even if you manage it poorly. So not always. Like there's a lot of businesses we bought where we just love the management and you know, you sit on the board and you offer your 2 cents worth along the way, but you don't have much to add. There are other businesses where in fact we can see that there's all sorts of levers we can pull to improve the operations of those businesses. So it really lends itself in certain instances to a lot of operational outperformance as well.

Ed Elson (56:23)

It's very rooted in first principles, I think, because I think Y Combinator's slogan is make stuff people want. And I think that's true of investing too. You want to invest in stuff that people actually want. It's a very simple concept. And then there's also, there's a layer beneath that which is you want to invest in stuff that people actually need and it's just indisputable. And I feel like that's sort of what you've done here. And it's a very simple concept. But I feel like with investing it becomes so convoluted. To the point where we're trying to make up reasons why this investment is going to be needed in the lives of everyday people. You need this strange derivative financial product here because there's this strange loophole in this regulatory system, whatever it is. And often I just think about it. Do you actually need. Do people really need that? Is that really gonna last for 10, 20, 30 years? People are always gonna need that. And you look at an airport, people need to fly. It's just. It's not a question. And if you can figure out a way to get into that investment and to, as you say, at a good price and let that compound for 20, 30 years, I mean, I guess the proof is in the pudding. You're right here. You've had massive success doing that. I want to start to wrap up, but I wanted to ask you about negotiation because, you know, we've covered the kinds of investments you want to get into, the power of compounding. But then the other piece of it is that can you get it for a good price? And that is all a game of negotiation. And I would imagine that you have sort of mastered the art of negotiation over the years.

Michael Doral (58:15)

I think it's more a game of strategy. Okay, in the sense that, look, you could be the best negotiator on the planet, but if five different people want that same asset that you want, who cares, right? You know, probably the worst negotiator will win the asset in that sense. You know, the highest person will pay the highest price, will win the asset. So, look, it's a. We're not the only ones who know this is a really interesting asset class. And so you've got to be strategically clever about where you find these assets. Because if you're turning up on the same asset at the same time as three other folks are turning up, all of us have money. It doesn't matter what your negotiation talent is like. And so it's all about finding situations where there's an owner of an asset who has ideally, some sort of pressure on them. It might be a balance sheet pressure, a liquidity pressure. Maybe it's a business that wants to buy something else, and so it needs to dispose of something in a certain time period, in a quick time period. And so you can take advantage of your ability to move quickly. It might be a partnership, where a partnership is usually so bespoke. You can't go and run an auction process around a partnership. You've got to bring someone in and negotiate this bespoke partnership. It may be a type of asset that has all these infrastructure characteristics, but it hasn't really been identified before. So a great example of that is we own the largest cold storage network in the US so 30% of food in the US goes through our cold storage network. We were probably, I think, the first infrastructure business to go and identify cold storage as one of these categories of essential, you know, underlying infrastructure. Yeah, assets. So it's, it's finding circumstances where the balance of power is with the yes person with the money as opposed to the person with the asset. Right now, when interest rates are 1%, it's pretty hard because money's almost free. When interest rates are higher like they are today, much more interesting because money is expensive and so the person with the money has more negotiating leverage perhaps than they certainly do in a lower interest rate environment.

Ed Elson (60:56)

Yeah, we often talk about, you want to look for forced sellers, people who they need to sell, as for any of the various reasons that you just highlight there. That's when you're gonna get a great price. Is there any advice that you would give to young people who want to get into investing right now? Possibly someone who maybe wants to start their own fund. I feel like it's not as much of a thing anymore. Young people going out and starting their own funds probably because of competition. The people who are starting companies these days, they're starting tech companies, they're not starting investment firms or asset management firms. So what would be your advice to a young person starting out in their career wants to get into investing and also maybe they want to start their own investment firm.

Michael Doral (61:51)

So my younger brother who's now in the US came over from Australia. He grew up in advertising. Okay. He was in radio. He's like a smart ass and he writes jingles for advertising. And he got to the US wanted to change careers and so he teamed up with a guy In Austin, Texas, two young guys, like my brother's 40, his partner is 30, something like that. And they saw an opportunity to go and buy pool cleaning businesses. Literally the folks who go and scoop the leaves out of your pool. And the reason that was interesting is that you can buy those businesses for low cash flow multiples. And there's a huge network effect. Like if you own a lot of those businesses, the trip time between one customer to the next is somewhat shorter than if you're a one man band sort of, you know, going all across town to, from one pool to the other. And so what they did is they literally went around Austin to golf clubs and other places in Houston and family offices and Whatnot. So again, my brother's got zero business experience at all. His business partner had been a CFO or something like that in a private equity startup portfolio. Companies had a little bit of business experience, but a little bit to our earlier conversation about just, just jumping in. They went around and they had a business plan and they started to line up businesses to buy. Now these pool businesses are pretty small. You know, 5 million bucks here, 2 million bucks there, 10 million bucks there. They lined up these acquisitions and they went around and said to just high net worth individuals, hey, this is what we're doing. Would you invest with us? And they managed to pull together $30 million of high net worth money. And they went and bought $30 million worth of pool cleaning businesses. They then marked that up to $100 million and they went and raised another round at $100 million. Then they went and did the same thing for H Vac services businesses. So the person who comes and fixes your air conditioning or fixes your heater, they did the same thing for that and now they're going out and raising a private equity fund. So I've seen it in action and I think that the, you know, if I had to summarize that, it's identifying a little business niche that you think is interesting to go and buy and lining up some deals and then going and lining up some money. People love to see deals. If people see deals, they tend to be willing to turn up with money. So there's a real life example of a person who really, from a standing start, is now sitting on a couple hundred million dollars of capital under management, and I think is well positioned to go and start an investment firm.

Ed Elson (65:03)

From that final question from me, who are your role models? Is there anyone in business or in life who you really look up to and who you've tried to sort of emulate?

Michael Doral (65:15)

We mentioned it earlier. I think Buffett is far and away the best investor I've ever seen. I can't recommend highly enough for folks just to go and read his letters. You know, go and buy a book. I mean, there's a great book out there that literally just has all these annual letters. It's so interesting to read from. I forget his first annual letter might have been in the late 60s. I've read every one of those letters from the late 60s through to today. It's the best business investing learning you will ever get. So in that sense, I, I take he's probably the investor that I've tried to learn the most from. Now I think he's so special. You could never emulate him. But, but I've tried to learn the most from him. I learned a lot from Steve at Blackstone. I learned a lot from Tony James at Blackstone. I had a boss at Macquarie, Murray Bleach, who was the person who just threw me into the, you know, to the deep end. I learned a lot from him. Nicholas Moore, who ran Macquarie and really established infrastructure as an asset class. I mean, he trained a whole generation, several generations of infrastructure investors and entrepreneurs. So I've been very fortunate to be at really two of the greatest, I think, financial institutions on the planet between Macquarie and Blackstone. And there's just so many folks within those firms that I've taken a lot away from.

Ed Elson (66:46)

Well, we've learned a lot in this episode. I'd love to keep going, but we should probably wrap it up. Thank you so much for joining. Mike Dorrell is the founder and CEO of Stonepeak. Mike, thank you so much.

Michael Doral (67:01)

Thank you. It was great. I appreciate it. Appreciate.

Ed Elson (67:07)

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research associate is Dan Shalon. Thank you for listening to first time founders from the Vox Media Podcast network. We'll see you next month for another founder story.

Michael Doral (67:33)

Foreign.

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