Some private equity wisdom

Inquiring minds are reading Interview with David Bonderman, the founding partner of Texas Pacific Group ("TPG") and an alumni of Harvard Law School, on what it takes to be a successful private equity investor:

Harbus: What do you think makes a good private equity investor?

DB: Being a good private equity investor is more complicated than it seems. I would say that there are a few characteristics that are important. If you look at the skill set that you need to ultimately be a successful private equity investor, at least at the senior level, you have to be, in this business, a good investor. You have to be able to help companies perform and you have to have judgment around exiting investments. If you look at the skill sets there, they include some things you can teach and some that you can't.

One of them, of course, is being a person who has good judgment about businesses. A second is someone who's pretty analytical and understands how to deal with numbers. A third one is personality, because in the private equity business, there's no deal unless you can persuade somebody to sell you their company. And as you say, there are many competitive situations here. So if many of us are all out there competing, and people like you and they don't like me, they're probably going to be interested in selling their company to you, and not me. So, you have to have a mix of those talents.

In addition, a very important characteristic is having a nose for value.

That's why some of the very best private equity people, in my experience, are people who start out as stock pickers - people who really understood value, how to take a company's financials apart and couple that with good judgment about businesses, macro trends, and where things are going.

It's a complicated skill set, and probably no one is perfect at all of them.

The more you start out with the right kind of personality, the right kind of smarts and the better the training you get, the more successful you're likely to be.

Harbus: Mr. Bonderman, you've obviously had a very successful career in private equity. What do you enjoy most about your job? What has been the most challenging aspect of your career path?

DB: Let me answer those in different ways. For me, one of the highlights of being in the private equity world is that you need to learn a lot and very quickly about different businesses. So it's always a continuing learning experience where you can apply what you know, of course, by way of judgment and by way of numerical analysis. You're always investing in new businesses, which is a learning experience in itself. I think that is a wonderful thing and I think it makes for intellectual challenge and for continued personal growth. That, for me, is the highlight of this job.

You have a challenge every day in figuring out what's happening in the markets, where your next deal is coming from and so forth. So there is always a continuing challenge - but this is a financial services business, it's not brain surgery. The challenges are all about getting it right, but in the scheme of things, there is plenty of latitude to get it wrong.

h/t ZeroHedge