Aoifinn Devitt: Our next guest is a legend on the London private equity scene. Hear how leaving no stone unturned and not being afraid of straight talk has guided him through decades in this complex area. I’m Aoifinn Devitt, and welcome to the 50 Faces podcast., a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Stephen Breban, who is Head of Research at Renewity, the founder of Giants Shoulders Capital, and a consultant to a number of different firms. He is known as one of London’s original and legendary, in my view, private equity investors and advisors, and has witnessed some of the good, the bad, and the ugly that that sector presents. We’ve had the pleasure of working together side by side in our own entrepreneurial ventures for over a decade. Welcome, Stephen. Thanks for joining me today.
Bonus Episode: Thank you.
Aoifinn Devitt: So let’s start with talking about your journey into the world of investment. Where did it start? Did it take any surprising turns along the way? And how did you make it to private equity?
Bonus Episode: Yeah. My career has been a whole series of left turns. I was headhunted by Bacon Woodrow in Guernsey when I was aged 14, solely because I was born on the island and reached out to my careers officer the day before they did. And after working there as an intern for 7 years, I started full-time in London and ended up in the investment practice a couple of months later. I was headhunted a couple of times, and probably the only decision that was entirely driven by me was to branch out on my own in 2005.
Aoifinn Devitt: I just have to ask, what does a 14-year-old intern do somewhere like Bacon Woodrow?
Bonus Episode: Well, interns don’t exactly get the best work anywhere. So whether you’re age 13 or 20 or 19, it doesn’t really matter that much. I was doing transfer value calculations. I was looking up commutation factors and working out the service. I mean, it was pretty basic stuff, but it was pretty much everything that every new graduate does for the first 12 months when they join an actuarial company.
Aoifinn Devitt: It’s a pretty good experience at the age of 14. So then, as you said, you seem to have found your way to private equity decades before others did. As I said, you were probably one of the founders, at least in the advisory space in that area. What brought you there?
Bonus Episode: Well, actually, it was my first proper boss, Nick Fitzpatrick. And back in 1988, he was the only investment consultant anywhere in the world covering PE. I ended up being his bag boy, and so became the second. So that was purely a fluke.
Aoifinn Devitt: Now, I say you’ve covered the good, the bad, and the ugly, having covered private equity for decades. How would you sort of sum up, I suppose, the value proposition today? Like, what is it? Why use it today? And maybe compare that to what kind of a proposition it was, say, 20 years ago?
Bonus Episode: First and foremost, private equity offers diversification. And as such, it can reduce portfolio risk. This is fundamental. This is the most important thing. It is basic modern portfolio theory. And it’s one of the few options left to reduce risk. Just like mid-cap helps reduce risk when you’ve just got a portfolio of large-cap, and small-cap does the same when you’re looking at large and mid-cap, Private equity does the same again. It’s not a free lunch. It requires effort, but it’s worth it.
Aoifinn Devitt: And how about different sizes of investors? There is, I suppose, a perception that this is only for very large, sophisticated investors. You know, one thinks about the complexity, the fees, and, you know, sometimes the kind of 80/20 rule that, you know, 80% of your time might be spent kind of analyzing 20% of the portfolio. Is it worth it?
Bonus Episode: It is worth it, and all investors should consider private equity. There are listed offerings that allow you to scale. Again, it’s not easy, it takes time to get educated and get on top of the opportunity, but as a fiduciary, you’ve got a duty to your beneficiaries. Fund of funds have had a lot of bad press of late, and more than a little of this is self-induced, but they are still very powerful tools to help manage the government’s requirements: scale, diversification, and access. The leading players in the fund of funds area consistently outperform both public markets and the wider private equity market net of fees. And this strikes me as one of the less difficult decisions investors will get to make. The value proposition has changed, and like most other markets, it’s diminished. The potential returns are not what they used to be. The relative position to public markets might also have reduced, but as an absolute level in terms of a percentage of the core return you’re going to get in public markets, it’s actually as strong as it ever was. So if the expected return in public markets was 12% and is now 8%, you’re going to get more than a 2% to 3% premium on investing in private equity, and you still get the diversification.
Aoifinn Devitt: And without letting the genie out of the bottle, maybe you can just give us a few kind of insights into how you would approach setting up a private equity portfolio. If you were, say, to set one up for, say, a midsize institutional client, what ingredients would you have in there? Would you have a bit of secondaries, maybe? Would you— do you ever blend it with private credit? Do you put venture in there?
Bonus Episode: It’s easier if the client’s bigger. I mean, that’s the reality. So let’s start with that. And if it’s a large client, and you’ve got a very large client with $10 billion of assets, they will have a huge chunk in public equity. The path I take is to say, right, if you’ve got a huge chunk in public equity, there’s not a lot of benefit from me investing in private equity that’s highly correlated to that. You could look at Carlyle and KKR, Permear and Cervantes, and say, these are the best guys in the world. They’ve done private equity for decades. They were doing it for decades before I arrived on the scene. They know what they’re doing. They are genuinely very good. They will also consistently outperform public markets. However, when I put a client’s money into a private equity manager and they then invest into Alliance Boots, buying a public equity, take it into their portfolio, 4 years later sell it for 3 times their money, you’ve not done anything for diversification. You’ve just moved an asset from one spot on the portfolio to another. So for larger groups, it’s easier. You say, right, I’m not going to do those that are highly correlated. I’m going to spend more effort on the small and mid-market and venture. Now, when you look at medium-sized pension funds, you can say, well, can we do that? And the answer is, yeah, you can, because there are dozens, not hundreds, but there are dozens of private equity managers whose focus is just the mid-market. There’s more of those in the US, but the US offers a great diversity anyway. So there’s a great opportunity there. And there’s maybe a dozen that do venture funder funds. There are enough good managers for a mid-sized pension fund to say, right, we’re going to have 1 or 2 mid-market funder funds, 1 or 2 venture funder funds, and that will give diversification away from their core assets. And so again, you’re going to get the diversification benefit and you’re going to get an enhanced return benefit.
Aoifinn Devitt: And some listeners of this podcast will be looking at maybe building a career for themselves, either in private equity or like you did, striking out on their own in a consulting consulting format. What of your education do you think contributed to the career path that you had?
Bonus Episode: I think it was— the risk of sounding very, very trite— a working-class ethic of work hard, keep going and keep trying, and put the effort in. There’s nothing in private equity manager selection that is rocket science. If you go to the venture side and look at what some of the underlying portfolio companies are doing, yeah, you might get rocket science. But the rest of it isn’t rocket science. It’s about hard work. It’s about making the effort, and it’s about taking the time to do the job properly. So going to a grammar school, having to work hard there, going to university, being left on your own for the first time really and expected to get on with it— those were just useful skill sets. Then I think really in my employment, there’s probably most of my education has come through my employment, it was just being fortunate enough to work with people like Nick Fitzpatrick and David Hager early on in my career, who basically gave you responsibility and said, “Right, here’s the job, have a go at it. Here’s some directions. You’ve seen it a couple of times and get on with it.” And that’s part of the education as well. Take the opportunities that are put in front of you. In rugby, you say you make your own luck. And that’s part of it as well. Opportunities arise, you’ve got to take them and you’ve got to snatch at them with both hands.
Aoifinn Devitt: And the other area you’re known for besides private equity is Africa, investing in Africa. You’ve been there multiple times. You’ve spoken at conferences, and you frequently will speak on the topic. Can you tell us what started that interest?
Bonus Episode: Again, it was another fluke, and it was an opportunity I took advantage of. I was advising Goodyear Tires pension plan in Woolves, and there were some problems with their South African pension plan. And it was Towers Watson that was— what is it called then? It was Watson Wyatt then— that was advising them. And they asked their US consultants if someone would go down to try and help sort the problem out. No one in the US office at Towers wanted to go to Africa. And the London head of the London office was responsible for Goodyear tires, knew that I was advising on the investments in the UK, and asked me if I would go. And I jumped at the idea. The process was visiting their two plants. One was in Cape Town and one was Port Elizabeth. So it wasn’t exactly tough areas to visit. And that would take one day with each. And I decided if I’m going that far, I’m going to spend the rest of the week researching fund managers. And at that time, there was a guy, George Anson at Harbourvest, who was investing in South Africa. And he directed me to the leading managers. So this was the late ’90s. And I was investing a few years later. And then I set up my own business in 2005. And I started researching more African markets, so going out to Kenya, Ghana, Nigeria, Egypt, mostly the larger markets, but over the time I’ve built out and started looking at some smaller markets as well.
Aoifinn Devitt: And we’ve had met some other African-focused investors on this podcast, Michael Timmerman and Buyu Capital. We’ve also spoken with Uche Orji, who is heading up the Nigerian Sovereign Wealth Authority. We’ve spoken to them about both the opportunity on the ground in Africa and how it’s perceived by external investors. What would you comment on that? Do you think that the opportunity in Africa is well understood? And what are some of the biases that come to play?
Bonus Episode: No, it’s not understood at all, let alone well understood. There are those who think that it’s just the same as investing anywhere else. And there’s certain elements of that are the same. The due diligence you do is the same in terms of researching the fund managers and researching the portfolio companies and what they’re doing. But it’s just a different emphasis. And you do have to get on the ground and go and visit those portfolio companies. If I’m researching a US manager, venture manager, say, I get introduced to some of the portfolio companies for a reference. Sometimes they even sit on the first call during the reference, that’s not a reference at all. Sometimes they’ll just join the call, introduce you, or send an email. Those aren’t the references. I’ll keep in touch with those portfolio companies, and then I will make a point of being in the town where they are on a research trip and arrange to meet them for lunch or a coffee or breakfast or whatever. And then 18 months after the introduction, I’ll go through it again. And 9 times out of 10, they’ve forgotten who it was that introduced us. I will ask them about all their experiences with different managers. So I do that for the US. Why wouldn’t I do that for Africa? So if I want to research an African manager, I’m not just going to go to Lagos to see the fund manager. I’m going to go out to Benin and see some of the portfolio companies. And I’m not just going to go to Nairobi. I’m going to go to Mombasa. You’ve just got to get on a plane, in a car, and just go out and meet the people face to face. And the entrepreneurs and company managers love that in the States. They’re absolutely amazed when you do that in Africa. It’s just simple. So they just are very much more relaxed, more open, and are happy to talk. So that’s the main thing. It’s just you’re doing the same thing, but you do have to do it. Don’t just sit there and pretend to do it.
Aoifinn Devitt: I’m just kind of imagining that the appetite for that sort of fieldwork is probably not there with some institutions, which probably I suppose that leads to the need for perhaps a specialized consultant in that area.
Bonus Episode: Yeah, but the consultants are there. I mean, I’m not the only person doing this, and I can name half a dozen other people you can speak to that can do this for you as well. And again, it’s just people who are prepared to get on a plane and go and research these companies. And look, a certain amount of it is probably all the people that do this, we do it because we enjoy it. We enjoy speaking to these companies, we enjoy hearing their stories. And so there’s an element of that, and I guess those people that enjoy their job and really throw themselves into it and do take the advantages and do take the opportunities when they arise are the ones that are going to get you the better results. So there’s nothing wrong in delegating work. I mean, trustees can’t possibly make every decision in a you portfolio, know, they can’t pick the UK equity stocks, so they delegate that. And just the same way, you delegate the selection of private equity managers, whether that’s in the US or in Nigeria.
Aoifinn Devitt: Now, I’m going to go back to some of the lessons learned part of the podcast. And I suppose in the case of private equity, this is very much a people business. And equally, the commitments are long, probably among the longest within the asset allocation in terms of number of years. So if you have made a mistake in people selection, or if things have changed in terms of dynamics, there’s a— it can be a messy extrication process, if there is an extrication process. Have there been any investment mistakes or lessons that you’ve learned through the course of your career that you can maybe share, or some highs and lows of investing in this area?
Bonus Episode: Yeah, I mean, the two first things are, one is hard work pays off. And you have to do your due diligence, be thorough, patiently cover all the bases, don’t cut corners. Yeah, I enjoy going out to see these managers, but there’s a lot of grunt work that I don’t enjoy. And I’m getting paid for this. I’m getting paid a good wage. And so the fact that it’s not all drinking in bars and going on safari trips is part of the point. No one’s going to pay me to do that. They’re going to pay me to do this work and to do the patient work. So you’ve got to do it. Hard work pays off. The second lesson is no matter what you do or where you are, things will go wrong. Deals will fail. And while very rarely, people will try and rip you off. So the most prominent one is that I took a client into Abrage Africa Fund 3 in 2015. We did all the work. The client had a separate operational due diligence report. And when things went wrong, we were asked to retrospectively review that. We did, we checked it post-event, and there was nothing missing. We put in all the necessary checks and balances, most importantly ensuring all the assets were held by a third-party administrator. However, you conduct the due diligence on the fund that you’re investing in, but you can’t conduct due diligence on all the funds that the fund manager has got, and certainly not the ones that they issue 2 years hence that you’re not actually interested in. So it’s with other funds where the problem arose. Other LPs, and forgive me for my bluntness here, but hadn’t been so diligent and had invested in funds that didn’t have a third-party administrator. Worse than that, some of them invested funds where there was a third-party administrator, but the contributed drawdowns weren’t channeled through the third-party administrator. They were sent directly to the fund manager or even its parent. Look, the story is pretty well known, and there’s even now a book on the subject, The Key Man, but the business went into liquidation. And when it went into liquidation, our funds suffered because our fund managers looking after the Africa funds were not allowed to do the job. The liquidator wouldn’t let them do the buy-ons that were necessary. You know, there were several deals in there that were buy and build. And once the liquidator discovered that money was missing elsewhere, they felt very uncomfortable calling down money for this fund and asking investors to put money in this fund in order to facilitate the buy and build strategy. Now, the problem there was that the liquidator didn’t understand private equity, didn’t understand investment, and only understood liquidation. And one piece of advice that I would give to people, if you have a problem on a fund, you want to avoid liquidation at all costs, because once it goes into liquidation, it is then being run by someone who doesn’t have your best interests at heart and frankly doesn’t understand them. And just one thing I wanted to add on that is, to be absolutely clear, Arif Naqvi didn’t steal any money from the African funds. They were more robust than funds elsewhere. Abraaj is and was never an African problem. It’s a Dubai problem. It’s a Cayman problem. It’s even a US problem, but it’s not an African problem.
Aoifinn Devitt: And that’s interesting. As a point of advice, avoid liquidation if you can. Have you seen GP replacements work when some of these funds go bad?
Bonus Episode: Yeah. I mean, they can work. And you need to engage with the GP. And you need to engage with the asset management business and the parent of the asset management business. When you have the general partner structure, people automatically assume the general partner, the legal entity of the general partner is the asset manager. It’s not. The general partner of any fund is a legal entity that is set up for that fund and has a few shareholders, and frankly has no income and no outgoings. And so your usual protections that you think of protections in your LPA, such as if the general partner goes into liquidation, It can’t happen. It’s just never going to happen because it’s not about the asset manager. So people need to protect that. If you can engage with the manager, if you can work with them to agree a deal, that’s what you should do. If the manager says, “Right, well, there are so many problems elsewhere, I’ve just got to put the whole company into liquidation,” well, then there’s not a lot you can do about it. But if possible, you want to work with them, arrange— maybe that there’s a portion of the team that is capable of sorting this out. Identify them, get them on board, and work with that. Alternatively, you can transfer it to another manager. It’s a costly process, but it’s worth doing that. It’s worth taking the extra cost on the chin in order to get someone there who’s going to run the portfolio rather than not having it run for 2 years. I don’t want to just emphasize the bad things there. I just want to talk about some of the good things. Working in private equity, We are insanely lucky to work in this sector. There’s so many exciting things we see. I’ve met people like Sir Tim Berners-Lee and Elon Musk, and many investments go incredibly well, and the vast majority go incredibly well. When you hit a gem where the fund delivers 10 times your money, it’s hugely gratifying. And that just emphasizes why this is offering diversification, but within your private equity, you still need some diversification. As well.
Aoifinn Devitt: So let’s talk about what you like most about the investment world, having worked in it since the age of 14. I’d love to hear your comments on diversity in it and what we can do about it. And maybe you can touch on diversity in private equity in particular as well in your answer.
Bonus Episode: Yeah, I wasn’t working on investment entirely at 14. It was mainly the actuarial side. But yeah, so I love the variety in my job. I love seeing the different aspects— plant-based plastics one day, cybersecurity the next, renewable energy the day after that. It’s wonderful. So the variety in my job is great. Talking about diversity, yeah, we’ve talked about this, just the two of us before, and it’s a problem. It’s a problem here as it is in most areas. And just thinking about this, it’s probably less of an issue in the mid-market and SME area of private equity, but it’s a desperate issue in the mega buyouts area. And it’s worst of all in the venture capital. Now, the mega buyouts area has essentially come from a huge input from investment banking. You know, a huge proportion of people have come through that process, the M&A process, the corporate finance side. And investment banking in the ’70s and ’80s had an incredibly toxic culture of bullying. Whoever came into the business was bullied. They were bullied because they just arrived. They were bullied because they were Black, because they were Indian, because they were Chinese, because they were all woman, because they were short, because they were fat, because they played football or they played rugby or they played cricket. It didn’t matter. You bullied them. Now, the reality is if you are not part of the majority and you’re not the typical alpha male, you’re going to come in for more bullying. And investment banking doesn’t pick up Muppets. They pick up bright people. And frankly, a lot of those bright people decided, you know what? I don’t need this. And they set up on their own. It seems, it appears that a lot of those have directly gone into the mid-market area and SMEs, and they’re doing a great job in that area. And those that have gone through and stuck with the investment banking culture for longer have tended to end up in the larger buyout and the mega buyout area. And I was just thinking about it a matter of minutes ago and thought, actually, I wonder if that’s part of the reason why SMEs do better, because there is more diversity there. I don’t know that. It’s only just come into my sort of mind. There’s some effort going into this. One of the things is VC. VC is probably the worst. It’s probably the worst of any area. And there’s a number of things going on there. One of the things is VC, people don’t appreciate, is that to be a successful VC— people talk about Steve Jobs and how tough it was for him because he was working in his parents’ garage until he was 30 years old. That’s not tough. That is pretty much the epitome of privilege. His parents had a garage in the first place, and they were able to support him while he did this. That is the epitome of privilege. And unfortunately, VC, the way it’s set up, it rewards privilege more than any other area. In order to be able to put your life’s effort into these startups, you’ve got to have a security blanket. And if you’re Mark Zuckerberg and, oh look, he ducked out of Harvard, well, he got into Harvard in the first place. And frankly, if his parents had been two immigrant parents and he was the first generation to be born in the country, there’s no way he would have dropped out of his degree. It’s, you know, working-class parents would just— would never allow their child to drop out of a degree in order to do something that has such a low risk of success. They’d be saying, you’re going to carry on doing your degree, you can do that on the side. And these areas are truly the pinnacle of privilege, and it’s a problem in VC. So we then got the situation that it’s all about privilege— well, it’s not all about privilege, but it’s heavily rewarded. Then you’ve got the additional situation that VC has come out of Harvard, Stanford MBAs, and most people doing this are 20, 30 years into the sector. And you go back 20, 30 years, and most of the people doing Harvard and Stanford MBAs were white, upper-middle-class gents. And we all suffer from bias, and we just tend to pick people who sound like us. And where we get tokenism— so tokenism can help and it’s lifted up some minorities, and some of those will try to help others. But let’s not pretend they have a free hand here. And the tokenism as well is often still employing privately educated people, whether they’re females or Black or an ethnic minority. And if they’re privately educated, one, you don’t really need to lift them up, and two, you’re really not doing anything for diversification. They’ve been educated in exactly the same way as you. They probably had mostly the same life experiences. If you want diversification, you’ve got to look a little bit further. And there have been a lot of studies on this, and there are ways that you can actually— first of all, you’ve got to accept that we’re all racist and we have racist biases and gender biases, and you have to address them and work towards them. But if you look at VC in particular, and it’s calmed down now, but a couple of years ago there was lots of stories about the large tech companies where women were abused. Well, let’s, let’s not be melodramatic. They were abused, and in some cases sexually abused. It was just a toxic culture. And so people have to recognize this. If we’re going to do something about it, you’ve got to recognize it, and you’ve got to go out of your way to get around it. And people worry about quotas and worry about affirmative action.. But if you want— I mean, I’ve done— I’ve got a colossal working-class chip on my shoulder which I’ve spent years trying to get rid of. And then I interview some interns, and 2 of the 3 I pick are privately educated. It’s difficult to get past the benefit that a private education gives to children. And so I know deep down that the guys from the working-class background, from the comprehensive schools, are as good. They’re just not as good as presenting. You’ve got to make a real conscious effort to get past that. So I think it’s a big problem in private equity. It’s more of an issue in venture, and it’s not going to change unless we actively work to change it. Such an interesting— rather a lot there.
Aoifinn Devitt: No, no, such an interesting observation, and it really brings up many of the themes that we have used throughout the Diverse Founders Series, actually, because we talk about the freedom to fail the distance travel to get to the board table, or to get to the interview in some cases, or at least to the pitch stage. And I think you made an interesting point earlier about some of the global differences. We talked about the process of setting up your own firm. If you failed there, even though you maybe didn’t have massive resources, you still had a social safety net that came from the country you were doing it in that probably mitigated failure.
Bonus Episode: Yes, I mean, just after I set up on my own in 2005, a few of the partners Watts and White, said, “Oh, let’s go for a drink.” And I thought they were going to congratulate me and say, “Steve, yeah, well done.” Turned out to be an intervention. It was, “Steve, you’re giving up an annuity for life. What are you doing? What are you thinking?” I said, “What’s the worst that can happen?” They said, “Well, the business can crash and fail. You could lose your home.” I said, “Okay, I lose my home, what happens? The council will look after me. My kids go to state schools, they’ll carry on going to state schools. I get cancer, I’ll go to the NHS.” there is a safety net in this country. So if I’d failed and crashed and burned, I would have always been okay. I would never have been out on the streets. And frankly, for many people in the US, most people in the US, that’s not the case. It’s true in most of Western Europe. It’s not true in developing nations. It sure as hell ain’t true in Africa. And so that ability to fail, that safety net, It just made it very easy for me to set up on my own. And financially, I’m probably net down from where I would have been if I’d stayed at Watson White, but I’ve learned so much and I’ve just had an amazing journey and it’s been great. And being able to do that, I’m very, very grateful for it. One of the other things about diversity, and it’s something working for different companies and startups along the way, one of the things we’ve done and working with City Capital Partners, working with Dean Wettin Advisory, we’ve all worked from home.. And in doing that, you know, we’ve gone out and we’ve looked for different people to join the organization at different times. We say we work from home and we’ve said we’ve got a job to do, this is your task, we need to do it by this date. If you happen to do that between the hours of 10 and 3 and then between the hours of 8 at night and 1 o’clock in the morning, really don’t care. If you take the time out to take your kids to school, pick them up, and cook dinner, but you get the job done by the deadline, we really couldn’t care. And so We were able to make a couple of appointments of women who had young families, wanted to spend their time at home. We had a budget on what we could afford. And frankly, the female candidates that came forward were vastly superior to the male candidates that came forward for that level of salary. And if you look at the tech startup area, if you look at people working in tech, and there’s been studies of this, that people have done investigations, categorized the CVs into different levels of seniority, then anonymized them, then gone back to them and said, what salary would you expect to move? And for each bracket, the men consistently asked for 20% more than the women. So that means if you’re a tech startup and if you’re employing just men, your salary role is 20% higher than it needs to be. People are going to look at this, and there’s an opportunity here. There’s an arbitrage here. It’s not saying take advantage of women. It’s not saying take advantage of minorities. It’s saying, I’ve got a budget, look at the candidates, and 9 times out of 10, the better-qualified candidate will be from a minority or a woman. I’ve done this myself. The 3 interns we did employ were all minorities. It wasn’t a conscious effort on my part to go out that way. It was maybe a little bit OCD and actuarial. Looking at their CVs, looking at their responses to questions, and picking the best candidates. And that was how it turned out.
Aoifinn Devitt: So many interesting nuances there that we could probably dedicate an entire podcast to as to why perhaps the salary requests were coming in at 20% higher. But we want a time to explore that now. But a very interesting data point. Well, you’ve already started going back to some of the key people who influenced you along the way. We’ve mentioned a few. And I’d like to take this whole conversation back to your personal story now. So can you maybe mention some of those key people and what way they influenced you?
Bonus Episode: Yeah, I mean, to be honest, I’ve been very lucky and there are way too many people that I could refer to. I’m going to pick out two. Number one, probably because he’s had the most influence on me, and that’s Nick Fitzpatrick. Nick got me into private equity. He supported me, encouraged me. At my worst personal moment when he wasn’t even my employer anymore, he built a safety net for me should I need it. I’m never going to forget that. I mean, he’s just truly, truly wonderful guy, and I love him. I’m very grateful for everything he’s done for me. Another one is the guy who recruited me to Bacon Woodrow in Guernsey, Stephen Ainsworth. He got me in as an intern, and so I’ve been interning for 7 years, and we ended up working in London, and fairly soon it became clear I wasn’t going back to Guernsey. I went to him one Christmas when I was back seeing the family and said, look, I’m really sorry, I’m not going to come back to Guernsey. And I’d hope you don’t think that I was just using you. And he’s a wonderful guy, and he just said, Stephen, every man is a debtor to his profession. If you want to repay me, help the next chap. And that stuck with me as well, and it’s always been important for me. I’ve done mentoring for the Institute of Actuaries, I’m doing it for my university right now, and I’ve done it within different employers where people have asked me to be their mentor. And even now I’m doing it just randomly with different people I know in the industry, and it’s very, very to important important me. And I was given a lot of opportunities along the way, and yeah, I want to give something back. And so that’s Stephen Ainsworth was the second one.
Aoifinn Devitt: And in terms of any key pieces of advice that you’ve received or any words of wisdom that you live by, is there anything that you can share there?
Bonus Episode: Yeah, so again, Nick Fitzpatrick. I was just talking about how, you know, I was 5 years into the job and I just couldn’t imagine being able to glean some of the insights that Nick and David Hager were able to do when they would look at portfolios, they’d look at companies, and Nick had this brilliant insight and he’d just say, “No, this smells, I’m not touching it.” And I just thought, how the hell am I ever going to get that? And Nick said, “Don’t underestimate how much perspective 15 years of experience will give you.” It was essentially be patient and see more and you’ll be able to do my job. And patience was never my superpower, and it was helpful advice.
Aoifinn Devitt: It’s really interesting though, because I think there’s that point of seeing more just naturally, but also perhaps seeking out and deliberately looking for more to see, because I think there is a sense of— you mentioned before taking opportunities as they’re presented. I’m going to ask a question related to that that I didn’t put on our script, but I’m sure you’ll be able to answer. It really gets to the particular maybe advice or insights you got from work working in Africa and maybe experience with people in Africa, as you know, anything there kind of stuck with you that you’ve imported into the work that you do?
Bonus Episode: Yeah, and this came up when I was asked to do a conference and I’ll be on a panel for African tech, and we were talking about why when some tech companies do raise money still fail. And my perception was, I was on a panel and they all gave the MBA answer, and I said, right, that’s the MBA answer. The MBA answer is identify a need, fulfill that need, fulfill that pain point, and you’ll be a successful business. And I said, that’s Field of Dreams. It’s beautiful for a Hollywood story, but it’s, it’s not true. And the biggest brand in Africa is Coca-Cola. Guinness is quite high up there. Moet is very high up in Nigeria. And if you want to start up and you want to deliver something, and if you want to be a consultant, It’s not about giving people what they need, it’s give them what they want. Don’t pretend that you know them better than they do. Don’t say, well, this is what you need, you just don’t understand that because you’re ignorant, or my product is the best product in the world and you’d be an idiot not to buy it. And this is a huge, colossal problem in European venture. My product is so good it’ll sell itself. No, it won’t. It’ll never sell itself. If you don’t have sales, you don’t have a business. So give people what they want, and failing that, convince them that they want it with marketing and advertising.
Aoifinn Devitt: Sound words there for all of us. And my last question is around any advice you would have for your younger self. You can either go back to that 14-year-old intern— I’m still fascinated by that— or a little older. Is there anything you know now you wish you had known then?
Bonus Episode: Yeah, I mean, one I heard was don’t trust anyone over the age of 30, and there’s a little bit of irony in me saying that, but there is something to that. And it’s sometimes as we get older, we lose certain habits. And the most important habit we have as a child is to say why. You’ve got kids, I’ve got you kids, know, whenever you’re doing something, kids go, why, why? Just never stop asking that question. Question everything. And even when you’ve done something a dozen times over, people will say, oh, the definition of madness is doing the same thing over and expecting a different outcome. Well, yeah, okay, you can do the same thing over and over, and you might not expect a different outcome. But you need to be ready for it. Because that’s the whole concept of a black swan event. We didn’t see this coming. So get ready for it. So question everything.
Aoifinn Devitt: That’s wonderful advice. It echoes something that David Mooney said in an earlier podcast, which was never lose the ability to be surprised in the realm of finance, basically. Don’t accept conventional wisdom necessarily, what becomes such. And yeah, I think you’re right, you’re absolutely right, do question conventional wisdom. Well, thank you so much, Stephen. It’s been a pleasure speaking with you today. You have not disappointed. Your legendary status has preceded you and will persist after this conversation. It’s been very wide-ranging. And I think we can use some of your tips of advice in a number of our sub-series as well. So thank you for coming here and for sharing your insights with us.
Bonus Episode: You’re very welcome. Thank you. I’ve genuinely enjoyed it.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces Podcast. If you liked what you heard and would like to tune in to hear more inspiring investors and their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
Aoifinn Devitt: Our next guest is a legend on the London private equity scene. Hear how leaving no stone unturned and not being afraid of straight talk has guided him through decades in this complex area. I’m Aoifinn Devitt, and welcome to the 50 Faces podcast., a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Stephen Breban, who is Head of Research at Renewity, the founder of Giants Shoulders Capital, and a consultant to a number of different firms. He is known as one of London’s original and legendary, in my view, private equity investors and advisors, and has witnessed some of the good, the bad, and the ugly that that sector presents. We’ve had the pleasure of working together side by side in our own entrepreneurial ventures for over a decade. Welcome, Stephen. Thanks for joining me today.
Bonus Episode: Thank you.
Aoifinn Devitt: So let’s start with talking about your journey into the world of investment. Where did it start? Did it take any surprising turns along the way? And how did you make it to private equity?
Bonus Episode: Yeah. My career has been a whole series of left turns. I was headhunted by Bacon Woodrow in Guernsey when I was aged 14, solely because I was born on the island and reached out to my careers officer the day before they did. And after working there as an intern for 7 years, I started full-time in London and ended up in the investment practice a couple of months later. I was headhunted a couple of times, and probably the only decision that was entirely driven by me was to branch out on my own in 2005.
Aoifinn Devitt: I just have to ask, what does a 14-year-old intern do somewhere like Bacon Woodrow?
Bonus Episode: Well, interns don’t exactly get the best work anywhere. So whether you’re age 13 or 20 or 19, it doesn’t really matter that much. I was doing transfer value calculations. I was looking up commutation factors and working out the service. I mean, it was pretty basic stuff, but it was pretty much everything that every new graduate does for the first 12 months when they join an actuarial company.
Aoifinn Devitt: It’s a pretty good experience at the age of 14. So then, as you said, you seem to have found your way to private equity decades before others did. As I said, you were probably one of the founders, at least in the advisory space in that area. What brought you there?
Bonus Episode: Well, actually, it was my first proper boss, Nick Fitzpatrick. And back in 1988, he was the only investment consultant anywhere in the world covering PE. I ended up being his bag boy, and so became the second. So that was purely a fluke.
Aoifinn Devitt: Now, I say you’ve covered the good, the bad, and the ugly, having covered private equity for decades. How would you sort of sum up, I suppose, the value proposition today? Like, what is it? Why use it today? And maybe compare that to what kind of a proposition it was, say, 20 years ago?
Bonus Episode: First and foremost, private equity offers diversification. And as such, it can reduce portfolio risk. This is fundamental. This is the most important thing. It is basic modern portfolio theory. And it’s one of the few options left to reduce risk. Just like mid-cap helps reduce risk when you’ve just got a portfolio of large-cap, and small-cap does the same when you’re looking at large and mid-cap, Private equity does the same again. It’s not a free lunch. It requires effort, but it’s worth it.
Aoifinn Devitt: And how about different sizes of investors? There is, I suppose, a perception that this is only for very large, sophisticated investors. You know, one thinks about the complexity, the fees, and, you know, sometimes the kind of 80/20 rule that, you know, 80% of your time might be spent kind of analyzing 20% of the portfolio. Is it worth it?
Bonus Episode: It is worth it, and all investors should consider private equity. There are listed offerings that allow you to scale. Again, it’s not easy, it takes time to get educated and get on top of the opportunity, but as a fiduciary, you’ve got a duty to your beneficiaries. Fund of funds have had a lot of bad press of late, and more than a little of this is self-induced, but they are still very powerful tools to help manage the government’s requirements: scale, diversification, and access. The leading players in the fund of funds area consistently outperform both public markets and the wider private equity market net of fees. And this strikes me as one of the less difficult decisions investors will get to make. The value proposition has changed, and like most other markets, it’s diminished. The potential returns are not what they used to be. The relative position to public markets might also have reduced, but as an absolute level in terms of a percentage of the core return you’re going to get in public markets, it’s actually as strong as it ever was. So if the expected return in public markets was 12% and is now 8%, you’re going to get more than a 2% to 3% premium on investing in private equity, and you still get the diversification.
Aoifinn Devitt: And without letting the genie out of the bottle, maybe you can just give us a few kind of insights into how you would approach setting up a private equity portfolio. If you were, say, to set one up for, say, a midsize institutional client, what ingredients would you have in there? Would you have a bit of secondaries, maybe? Would you— do you ever blend it with private credit? Do you put venture in there?
Bonus Episode: It’s easier if the client’s bigger. I mean, that’s the reality. So let’s start with that. And if it’s a large client, and you’ve got a very large client with $10 billion of assets, they will have a huge chunk in public equity. The path I take is to say, right, if you’ve got a huge chunk in public equity, there’s not a lot of benefit from me investing in private equity that’s highly correlated to that. You could look at Carlyle and KKR, Permear and Cervantes, and say, these are the best guys in the world. They’ve done private equity for decades. They were doing it for decades before I arrived on the scene. They know what they’re doing. They are genuinely very good. They will also consistently outperform public markets. However, when I put a client’s money into a private equity manager and they then invest into Alliance Boots, buying a public equity, take it into their portfolio, 4 years later sell it for 3 times their money, you’ve not done anything for diversification. You’ve just moved an asset from one spot on the portfolio to another. So for larger groups, it’s easier. You say, right, I’m not going to do those that are highly correlated. I’m going to spend more effort on the small and mid-market and venture. Now, when you look at medium-sized pension funds, you can say, well, can we do that? And the answer is, yeah, you can, because there are dozens, not hundreds, but there are dozens of private equity managers whose focus is just the mid-market. There’s more of those in the US, but the US offers a great diversity anyway. So there’s a great opportunity there. And there’s maybe a dozen that do venture funder funds. There are enough good managers for a mid-sized pension fund to say, right, we’re going to have 1 or 2 mid-market funder funds, 1 or 2 venture funder funds, and that will give diversification away from their core assets. And so again, you’re going to get the diversification benefit and you’re going to get an enhanced return benefit.
Aoifinn Devitt: And some listeners of this podcast will be looking at maybe building a career for themselves, either in private equity or like you did, striking out on their own in a consulting consulting format. What of your education do you think contributed to the career path that you had?
Bonus Episode: I think it was— the risk of sounding very, very trite— a working-class ethic of work hard, keep going and keep trying, and put the effort in. There’s nothing in private equity manager selection that is rocket science. If you go to the venture side and look at what some of the underlying portfolio companies are doing, yeah, you might get rocket science. But the rest of it isn’t rocket science. It’s about hard work. It’s about making the effort, and it’s about taking the time to do the job properly. So going to a grammar school, having to work hard there, going to university, being left on your own for the first time really and expected to get on with it— those were just useful skill sets. Then I think really in my employment, there’s probably most of my education has come through my employment, it was just being fortunate enough to work with people like Nick Fitzpatrick and David Hager early on in my career, who basically gave you responsibility and said, “Right, here’s the job, have a go at it. Here’s some directions. You’ve seen it a couple of times and get on with it.” And that’s part of the education as well. Take the opportunities that are put in front of you. In rugby, you say you make your own luck. And that’s part of it as well. Opportunities arise, you’ve got to take them and you’ve got to snatch at them with both hands.
Aoifinn Devitt: And the other area you’re known for besides private equity is Africa, investing in Africa. You’ve been there multiple times. You’ve spoken at conferences, and you frequently will speak on the topic. Can you tell us what started that interest?
Bonus Episode: Again, it was another fluke, and it was an opportunity I took advantage of. I was advising Goodyear Tires pension plan in Woolves, and there were some problems with their South African pension plan. And it was Towers Watson that was— what is it called then? It was Watson Wyatt then— that was advising them. And they asked their US consultants if someone would go down to try and help sort the problem out. No one in the US office at Towers wanted to go to Africa. And the London head of the London office was responsible for Goodyear tires, knew that I was advising on the investments in the UK, and asked me if I would go. And I jumped at the idea. The process was visiting their two plants. One was in Cape Town and one was Port Elizabeth. So it wasn’t exactly tough areas to visit. And that would take one day with each. And I decided if I’m going that far, I’m going to spend the rest of the week researching fund managers. And at that time, there was a guy, George Anson at Harbourvest, who was investing in South Africa. And he directed me to the leading managers. So this was the late ’90s. And I was investing a few years later. And then I set up my own business in 2005. And I started researching more African markets, so going out to Kenya, Ghana, Nigeria, Egypt, mostly the larger markets, but over the time I’ve built out and started looking at some smaller markets as well.
Aoifinn Devitt: And we’ve had met some other African-focused investors on this podcast, Michael Timmerman and Buyu Capital. We’ve also spoken with Uche Orji, who is heading up the Nigerian Sovereign Wealth Authority. We’ve spoken to them about both the opportunity on the ground in Africa and how it’s perceived by external investors. What would you comment on that? Do you think that the opportunity in Africa is well understood? And what are some of the biases that come to play?
Bonus Episode: No, it’s not understood at all, let alone well understood. There are those who think that it’s just the same as investing anywhere else. And there’s certain elements of that are the same. The due diligence you do is the same in terms of researching the fund managers and researching the portfolio companies and what they’re doing. But it’s just a different emphasis. And you do have to get on the ground and go and visit those portfolio companies. If I’m researching a US manager, venture manager, say, I get introduced to some of the portfolio companies for a reference. Sometimes they even sit on the first call during the reference, that’s not a reference at all. Sometimes they’ll just join the call, introduce you, or send an email. Those aren’t the references. I’ll keep in touch with those portfolio companies, and then I will make a point of being in the town where they are on a research trip and arrange to meet them for lunch or a coffee or breakfast or whatever. And then 18 months after the introduction, I’ll go through it again. And 9 times out of 10, they’ve forgotten who it was that introduced us. I will ask them about all their experiences with different managers. So I do that for the US. Why wouldn’t I do that for Africa? So if I want to research an African manager, I’m not just going to go to Lagos to see the fund manager. I’m going to go out to Benin and see some of the portfolio companies. And I’m not just going to go to Nairobi. I’m going to go to Mombasa. You’ve just got to get on a plane, in a car, and just go out and meet the people face to face. And the entrepreneurs and company managers love that in the States. They’re absolutely amazed when you do that in Africa. It’s just simple. So they just are very much more relaxed, more open, and are happy to talk. So that’s the main thing. It’s just you’re doing the same thing, but you do have to do it. Don’t just sit there and pretend to do it.
Aoifinn Devitt: I’m just kind of imagining that the appetite for that sort of fieldwork is probably not there with some institutions, which probably I suppose that leads to the need for perhaps a specialized consultant in that area.
Bonus Episode: Yeah, but the consultants are there. I mean, I’m not the only person doing this, and I can name half a dozen other people you can speak to that can do this for you as well. And again, it’s just people who are prepared to get on a plane and go and research these companies. And look, a certain amount of it is probably all the people that do this, we do it because we enjoy it. We enjoy speaking to these companies, we enjoy hearing their stories. And so there’s an element of that, and I guess those people that enjoy their job and really throw themselves into it and do take the advantages and do take the opportunities when they arise are the ones that are going to get you the better results. So there’s nothing wrong in delegating work. I mean, trustees can’t possibly make every decision in a you portfolio, know, they can’t pick the UK equity stocks, so they delegate that. And just the same way, you delegate the selection of private equity managers, whether that’s in the US or in Nigeria.
Aoifinn Devitt: Now, I’m going to go back to some of the lessons learned part of the podcast. And I suppose in the case of private equity, this is very much a people business. And equally, the commitments are long, probably among the longest within the asset allocation in terms of number of years. So if you have made a mistake in people selection, or if things have changed in terms of dynamics, there’s a— it can be a messy extrication process, if there is an extrication process. Have there been any investment mistakes or lessons that you’ve learned through the course of your career that you can maybe share, or some highs and lows of investing in this area?
Bonus Episode: Yeah, I mean, the two first things are, one is hard work pays off. And you have to do your due diligence, be thorough, patiently cover all the bases, don’t cut corners. Yeah, I enjoy going out to see these managers, but there’s a lot of grunt work that I don’t enjoy. And I’m getting paid for this. I’m getting paid a good wage. And so the fact that it’s not all drinking in bars and going on safari trips is part of the point. No one’s going to pay me to do that. They’re going to pay me to do this work and to do the patient work. So you’ve got to do it. Hard work pays off. The second lesson is no matter what you do or where you are, things will go wrong. Deals will fail. And while very rarely, people will try and rip you off. So the most prominent one is that I took a client into Abrage Africa Fund 3 in 2015. We did all the work. The client had a separate operational due diligence report. And when things went wrong, we were asked to retrospectively review that. We did, we checked it post-event, and there was nothing missing. We put in all the necessary checks and balances, most importantly ensuring all the assets were held by a third-party administrator. However, you conduct the due diligence on the fund that you’re investing in, but you can’t conduct due diligence on all the funds that the fund manager has got, and certainly not the ones that they issue 2 years hence that you’re not actually interested in. So it’s with other funds where the problem arose. Other LPs, and forgive me for my bluntness here, but hadn’t been so diligent and had invested in funds that didn’t have a third-party administrator. Worse than that, some of them invested funds where there was a third-party administrator, but the contributed drawdowns weren’t channeled through the third-party administrator. They were sent directly to the fund manager or even its parent. Look, the story is pretty well known, and there’s even now a book on the subject, The Key Man, but the business went into liquidation. And when it went into liquidation, our funds suffered because our fund managers looking after the Africa funds were not allowed to do the job. The liquidator wouldn’t let them do the buy-ons that were necessary. You know, there were several deals in there that were buy and build. And once the liquidator discovered that money was missing elsewhere, they felt very uncomfortable calling down money for this fund and asking investors to put money in this fund in order to facilitate the buy and build strategy. Now, the problem there was that the liquidator didn’t understand private equity, didn’t understand investment, and only understood liquidation. And one piece of advice that I would give to people, if you have a problem on a fund, you want to avoid liquidation at all costs, because once it goes into liquidation, it is then being run by someone who doesn’t have your best interests at heart and frankly doesn’t understand them. And just one thing I wanted to add on that is, to be absolutely clear, Arif Naqvi didn’t steal any money from the African funds. They were more robust than funds elsewhere. Abraaj is and was never an African problem. It’s a Dubai problem. It’s a Cayman problem. It’s even a US problem, but it’s not an African problem.
Aoifinn Devitt: And that’s interesting. As a point of advice, avoid liquidation if you can. Have you seen GP replacements work when some of these funds go bad?
Bonus Episode: Yeah. I mean, they can work. And you need to engage with the GP. And you need to engage with the asset management business and the parent of the asset management business. When you have the general partner structure, people automatically assume the general partner, the legal entity of the general partner is the asset manager. It’s not. The general partner of any fund is a legal entity that is set up for that fund and has a few shareholders, and frankly has no income and no outgoings. And so your usual protections that you think of protections in your LPA, such as if the general partner goes into liquidation, It can’t happen. It’s just never going to happen because it’s not about the asset manager. So people need to protect that. If you can engage with the manager, if you can work with them to agree a deal, that’s what you should do. If the manager says, “Right, well, there are so many problems elsewhere, I’ve just got to put the whole company into liquidation,” well, then there’s not a lot you can do about it. But if possible, you want to work with them, arrange— maybe that there’s a portion of the team that is capable of sorting this out. Identify them, get them on board, and work with that. Alternatively, you can transfer it to another manager. It’s a costly process, but it’s worth doing that. It’s worth taking the extra cost on the chin in order to get someone there who’s going to run the portfolio rather than not having it run for 2 years. I don’t want to just emphasize the bad things there. I just want to talk about some of the good things. Working in private equity, We are insanely lucky to work in this sector. There’s so many exciting things we see. I’ve met people like Sir Tim Berners-Lee and Elon Musk, and many investments go incredibly well, and the vast majority go incredibly well. When you hit a gem where the fund delivers 10 times your money, it’s hugely gratifying. And that just emphasizes why this is offering diversification, but within your private equity, you still need some diversification. As well.
Aoifinn Devitt: So let’s talk about what you like most about the investment world, having worked in it since the age of 14. I’d love to hear your comments on diversity in it and what we can do about it. And maybe you can touch on diversity in private equity in particular as well in your answer.
Bonus Episode: Yeah, I wasn’t working on investment entirely at 14. It was mainly the actuarial side. But yeah, so I love the variety in my job. I love seeing the different aspects— plant-based plastics one day, cybersecurity the next, renewable energy the day after that. It’s wonderful. So the variety in my job is great. Talking about diversity, yeah, we’ve talked about this, just the two of us before, and it’s a problem. It’s a problem here as it is in most areas. And just thinking about this, it’s probably less of an issue in the mid-market and SME area of private equity, but it’s a desperate issue in the mega buyouts area. And it’s worst of all in the venture capital. Now, the mega buyouts area has essentially come from a huge input from investment banking. You know, a huge proportion of people have come through that process, the M&A process, the corporate finance side. And investment banking in the ’70s and ’80s had an incredibly toxic culture of bullying. Whoever came into the business was bullied. They were bullied because they just arrived. They were bullied because they were Black, because they were Indian, because they were Chinese, because they were all woman, because they were short, because they were fat, because they played football or they played rugby or they played cricket. It didn’t matter. You bullied them. Now, the reality is if you are not part of the majority and you’re not the typical alpha male, you’re going to come in for more bullying. And investment banking doesn’t pick up Muppets. They pick up bright people. And frankly, a lot of those bright people decided, you know what? I don’t need this. And they set up on their own. It seems, it appears that a lot of those have directly gone into the mid-market area and SMEs, and they’re doing a great job in that area. And those that have gone through and stuck with the investment banking culture for longer have tended to end up in the larger buyout and the mega buyout area. And I was just thinking about it a matter of minutes ago and thought, actually, I wonder if that’s part of the reason why SMEs do better, because there is more diversity there. I don’t know that. It’s only just come into my sort of mind. There’s some effort going into this. One of the things is VC. VC is probably the worst. It’s probably the worst of any area. And there’s a number of things going on there. One of the things is VC, people don’t appreciate, is that to be a successful VC— people talk about Steve Jobs and how tough it was for him because he was working in his parents’ garage until he was 30 years old. That’s not tough. That is pretty much the epitome of privilege. His parents had a garage in the first place, and they were able to support him while he did this. That is the epitome of privilege. And unfortunately, VC, the way it’s set up, it rewards privilege more than any other area. In order to be able to put your life’s effort into these startups, you’ve got to have a security blanket. And if you’re Mark Zuckerberg and, oh look, he ducked out of Harvard, well, he got into Harvard in the first place. And frankly, if his parents had been two immigrant parents and he was the first generation to be born in the country, there’s no way he would have dropped out of his degree. It’s, you know, working-class parents would just— would never allow their child to drop out of a degree in order to do something that has such a low risk of success. They’d be saying, you’re going to carry on doing your degree, you can do that on the side. And these areas are truly the pinnacle of privilege, and it’s a problem in VC. So we then got the situation that it’s all about privilege— well, it’s not all about privilege, but it’s heavily rewarded. Then you’ve got the additional situation that VC has come out of Harvard, Stanford MBAs, and most people doing this are 20, 30 years into the sector. And you go back 20, 30 years, and most of the people doing Harvard and Stanford MBAs were white, upper-middle-class gents. And we all suffer from bias, and we just tend to pick people who sound like us. And where we get tokenism— so tokenism can help and it’s lifted up some minorities, and some of those will try to help others. But let’s not pretend they have a free hand here. And the tokenism as well is often still employing privately educated people, whether they’re females or Black or an ethnic minority. And if they’re privately educated, one, you don’t really need to lift them up, and two, you’re really not doing anything for diversification. They’ve been educated in exactly the same way as you. They probably had mostly the same life experiences. If you want diversification, you’ve got to look a little bit further. And there have been a lot of studies on this, and there are ways that you can actually— first of all, you’ve got to accept that we’re all racist and we have racist biases and gender biases, and you have to address them and work towards them. But if you look at VC in particular, and it’s calmed down now, but a couple of years ago there was lots of stories about the large tech companies where women were abused. Well, let’s, let’s not be melodramatic. They were abused, and in some cases sexually abused. It was just a toxic culture. And so people have to recognize this. If we’re going to do something about it, you’ve got to recognize it, and you’ve got to go out of your way to get around it. And people worry about quotas and worry about affirmative action.. But if you want— I mean, I’ve done— I’ve got a colossal working-class chip on my shoulder which I’ve spent years trying to get rid of. And then I interview some interns, and 2 of the 3 I pick are privately educated. It’s difficult to get past the benefit that a private education gives to children. And so I know deep down that the guys from the working-class background, from the comprehensive schools, are as good. They’re just not as good as presenting. You’ve got to make a real conscious effort to get past that. So I think it’s a big problem in private equity. It’s more of an issue in venture, and it’s not going to change unless we actively work to change it. Such an interesting— rather a lot there.
Aoifinn Devitt: No, no, such an interesting observation, and it really brings up many of the themes that we have used throughout the Diverse Founders Series, actually, because we talk about the freedom to fail the distance travel to get to the board table, or to get to the interview in some cases, or at least to the pitch stage. And I think you made an interesting point earlier about some of the global differences. We talked about the process of setting up your own firm. If you failed there, even though you maybe didn’t have massive resources, you still had a social safety net that came from the country you were doing it in that probably mitigated failure.
Bonus Episode: Yes, I mean, just after I set up on my own in 2005, a few of the partners Watts and White, said, “Oh, let’s go for a drink.” And I thought they were going to congratulate me and say, “Steve, yeah, well done.” Turned out to be an intervention. It was, “Steve, you’re giving up an annuity for life. What are you doing? What are you thinking?” I said, “What’s the worst that can happen?” They said, “Well, the business can crash and fail. You could lose your home.” I said, “Okay, I lose my home, what happens? The council will look after me. My kids go to state schools, they’ll carry on going to state schools. I get cancer, I’ll go to the NHS.” there is a safety net in this country. So if I’d failed and crashed and burned, I would have always been okay. I would never have been out on the streets. And frankly, for many people in the US, most people in the US, that’s not the case. It’s true in most of Western Europe. It’s not true in developing nations. It sure as hell ain’t true in Africa. And so that ability to fail, that safety net, It just made it very easy for me to set up on my own. And financially, I’m probably net down from where I would have been if I’d stayed at Watson White, but I’ve learned so much and I’ve just had an amazing journey and it’s been great. And being able to do that, I’m very, very grateful for it. One of the other things about diversity, and it’s something working for different companies and startups along the way, one of the things we’ve done and working with City Capital Partners, working with Dean Wettin Advisory, we’ve all worked from home.. And in doing that, you know, we’ve gone out and we’ve looked for different people to join the organization at different times. We say we work from home and we’ve said we’ve got a job to do, this is your task, we need to do it by this date. If you happen to do that between the hours of 10 and 3 and then between the hours of 8 at night and 1 o’clock in the morning, really don’t care. If you take the time out to take your kids to school, pick them up, and cook dinner, but you get the job done by the deadline, we really couldn’t care. And so We were able to make a couple of appointments of women who had young families, wanted to spend their time at home. We had a budget on what we could afford. And frankly, the female candidates that came forward were vastly superior to the male candidates that came forward for that level of salary. And if you look at the tech startup area, if you look at people working in tech, and there’s been studies of this, that people have done investigations, categorized the CVs into different levels of seniority, then anonymized them, then gone back to them and said, what salary would you expect to move? And for each bracket, the men consistently asked for 20% more than the women. So that means if you’re a tech startup and if you’re employing just men, your salary role is 20% higher than it needs to be. People are going to look at this, and there’s an opportunity here. There’s an arbitrage here. It’s not saying take advantage of women. It’s not saying take advantage of minorities. It’s saying, I’ve got a budget, look at the candidates, and 9 times out of 10, the better-qualified candidate will be from a minority or a woman. I’ve done this myself. The 3 interns we did employ were all minorities. It wasn’t a conscious effort on my part to go out that way. It was maybe a little bit OCD and actuarial. Looking at their CVs, looking at their responses to questions, and picking the best candidates. And that was how it turned out.
Aoifinn Devitt: So many interesting nuances there that we could probably dedicate an entire podcast to as to why perhaps the salary requests were coming in at 20% higher. But we want a time to explore that now. But a very interesting data point. Well, you’ve already started going back to some of the key people who influenced you along the way. We’ve mentioned a few. And I’d like to take this whole conversation back to your personal story now. So can you maybe mention some of those key people and what way they influenced you?
Bonus Episode: Yeah, I mean, to be honest, I’ve been very lucky and there are way too many people that I could refer to. I’m going to pick out two. Number one, probably because he’s had the most influence on me, and that’s Nick Fitzpatrick. Nick got me into private equity. He supported me, encouraged me. At my worst personal moment when he wasn’t even my employer anymore, he built a safety net for me should I need it. I’m never going to forget that. I mean, he’s just truly, truly wonderful guy, and I love him. I’m very grateful for everything he’s done for me. Another one is the guy who recruited me to Bacon Woodrow in Guernsey, Stephen Ainsworth. He got me in as an intern, and so I’ve been interning for 7 years, and we ended up working in London, and fairly soon it became clear I wasn’t going back to Guernsey. I went to him one Christmas when I was back seeing the family and said, look, I’m really sorry, I’m not going to come back to Guernsey. And I’d hope you don’t think that I was just using you. And he’s a wonderful guy, and he just said, Stephen, every man is a debtor to his profession. If you want to repay me, help the next chap. And that stuck with me as well, and it’s always been important for me. I’ve done mentoring for the Institute of Actuaries, I’m doing it for my university right now, and I’ve done it within different employers where people have asked me to be their mentor. And even now I’m doing it just randomly with different people I know in the industry, and it’s very, very to important important me. And I was given a lot of opportunities along the way, and yeah, I want to give something back. And so that’s Stephen Ainsworth was the second one.
Aoifinn Devitt: And in terms of any key pieces of advice that you’ve received or any words of wisdom that you live by, is there anything that you can share there?
Bonus Episode: Yeah, so again, Nick Fitzpatrick. I was just talking about how, you know, I was 5 years into the job and I just couldn’t imagine being able to glean some of the insights that Nick and David Hager were able to do when they would look at portfolios, they’d look at companies, and Nick had this brilliant insight and he’d just say, “No, this smells, I’m not touching it.” And I just thought, how the hell am I ever going to get that? And Nick said, “Don’t underestimate how much perspective 15 years of experience will give you.” It was essentially be patient and see more and you’ll be able to do my job. And patience was never my superpower, and it was helpful advice.
Aoifinn Devitt: It’s really interesting though, because I think there’s that point of seeing more just naturally, but also perhaps seeking out and deliberately looking for more to see, because I think there is a sense of— you mentioned before taking opportunities as they’re presented. I’m going to ask a question related to that that I didn’t put on our script, but I’m sure you’ll be able to answer. It really gets to the particular maybe advice or insights you got from work working in Africa and maybe experience with people in Africa, as you know, anything there kind of stuck with you that you’ve imported into the work that you do?
Bonus Episode: Yeah, and this came up when I was asked to do a conference and I’ll be on a panel for African tech, and we were talking about why when some tech companies do raise money still fail. And my perception was, I was on a panel and they all gave the MBA answer, and I said, right, that’s the MBA answer. The MBA answer is identify a need, fulfill that need, fulfill that pain point, and you’ll be a successful business. And I said, that’s Field of Dreams. It’s beautiful for a Hollywood story, but it’s, it’s not true. And the biggest brand in Africa is Coca-Cola. Guinness is quite high up there. Moet is very high up in Nigeria. And if you want to start up and you want to deliver something, and if you want to be a consultant, It’s not about giving people what they need, it’s give them what they want. Don’t pretend that you know them better than they do. Don’t say, well, this is what you need, you just don’t understand that because you’re ignorant, or my product is the best product in the world and you’d be an idiot not to buy it. And this is a huge, colossal problem in European venture. My product is so good it’ll sell itself. No, it won’t. It’ll never sell itself. If you don’t have sales, you don’t have a business. So give people what they want, and failing that, convince them that they want it with marketing and advertising.
Aoifinn Devitt: Sound words there for all of us. And my last question is around any advice you would have for your younger self. You can either go back to that 14-year-old intern— I’m still fascinated by that— or a little older. Is there anything you know now you wish you had known then?
Bonus Episode: Yeah, I mean, one I heard was don’t trust anyone over the age of 30, and there’s a little bit of irony in me saying that, but there is something to that. And it’s sometimes as we get older, we lose certain habits. And the most important habit we have as a child is to say why. You’ve got kids, I’ve got you kids, know, whenever you’re doing something, kids go, why, why? Just never stop asking that question. Question everything. And even when you’ve done something a dozen times over, people will say, oh, the definition of madness is doing the same thing over and expecting a different outcome. Well, yeah, okay, you can do the same thing over and over, and you might not expect a different outcome. But you need to be ready for it. Because that’s the whole concept of a black swan event. We didn’t see this coming. So get ready for it. So question everything.
Aoifinn Devitt: That’s wonderful advice. It echoes something that David Mooney said in an earlier podcast, which was never lose the ability to be surprised in the realm of finance, basically. Don’t accept conventional wisdom necessarily, what becomes such. And yeah, I think you’re right, you’re absolutely right, do question conventional wisdom. Well, thank you so much, Stephen. It’s been a pleasure speaking with you today. You have not disappointed. Your legendary status has preceded you and will persist after this conversation. It’s been very wide-ranging. And I think we can use some of your tips of advice in a number of our sub-series as well. So thank you for coming here and for sharing your insights with us.
Bonus Episode: You’re very welcome. Thank you. I’ve genuinely enjoyed it.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces Podcast. If you liked what you heard and would like to tune in to hear more inspiring investors and their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
