Mario Giannini on the Art of Investing (Podcast)

a whole lot of capital. His background is that of a bankruptcy lawyer turned private equity investor, and he really has just a fascinating um history. There aren't a whole lot of people who are more knowledgeable about the ins and outs of private equity, buyout for ms UM, distress debt, a whole run of different h fixed income private on the private side. Really just a really informative, really knowledgeable guy.

I found this to be an utterly fascinating conversation, and I think you will also so, with no further ado, My conversation with Hamilton's Lanes Mario Jannini Vias is Masters in Business with Barry Ridholts on Bloomberg Radio My special guest today is Mario Janey. He is the CEO of Hamilton's Lane, one of the largest private equity firms in the world. He joined the firm in two years after

it was founded in Philadelphia. The company is publicly traded with a market cap of three point five billion dollars and overseas over five hundred billion dollars in investments, including sixty eight billion dollars in discretionary assets under management. Janini was named as one of c i o's Knowledge Broker All Stars. Mario Jannini, Welcome to Bloomberg. Thank you. So before Hamilton's Lane was making private investments, you were advising companies on them. Tell us a little bit about your

your work history. I started out as a lawyer UM and was singularly unsuccessful at that and really branched off into because I came out of the bankruptcy side of the legal world and really went into basically turning companies around UM And at one point had sold a company and I knew someone that had invested in Hamilton Lane and they said you ought to go over there and take a look. And I really thought I was just going to spend a few months and find another company

to buy and never left. I was like the bad penny that that stays. I couldn't get rid of you. So I have to imagine that having a bankruptcy back round gives you very specific insight into what companies can be turned around and what really just needs to be liquidated. Yeah, I think the bankruptcy background helped in that You're You're absolutely right. It gives you an idea of what can

go wrong. I think that's the part that that I took away was what can happen at companies, whether it's companies were investing in or at Hamilton Lane, What leads companies to go into a bad place? And then what do you do with them, like you said, when they're in that place. So it was very helpful from that perspective. So tell us a little bit about Hamilton's Lanes business lines. Who are your clients and what sort of investments do

you tend to consider? Well, our business lines is basically we invest in our clients or anyone that is looking to be investing in the private markets, whether it's private equity, private debt, real estate, real assets, any of the column liquids, the alternative markets, and we look at investments in all of those different parts, and we help clients develop portfull as we help clients choose investments both on an advisory basis and on a discretionary basis, depending on how they

want to work with us. And the clients are global, you know, it's about the business about clients are US and are non US, So it's a it's a diversified client based different types of clients, pension funds, high net worths, um everything in between. UH and it really, as I said, covers the whole range of the of the private markets. We look at that buyouts, we look at venture capital.

I would say the largest part of our business is the private equity side UM as compared to credit or real assets, but those are, as you know, in the private world, increasingly larger parts of it. And in the private equity part, I would say it is mostly buyout, growth capital, a little bit of venture um. And in terms of geography, in terms of where we invest, it's probably six US, Europe and then the rest of the

world accounts for the rest. So I mentioned earlier, you have sixty eight billion dollars in assets under management that are discretionary and that you have either advisory or supervisory management over the nets let's call it four hundred and fifty billion dollars. I know I'm going to get questions about that, so let me just pass them along to you. What is the difference between discretionary assets under management and the balance of the assets that you were either supervising

or advising on. Yeah, the difference is essentially who who controls the final decision. So with the discretionary assets under management, somebody gives Hamilton Lane a dollar a euro again and says you invest that for us. You make all the choices, you decide where you want to put it, which investments you want to put it in, and it's it's completely up to you. On the advisory or assets under advisement, however they're they're phrased there, we're working with the clients.

So the client will say anything like go find the best buy up fund, bring it back to us and recommend it to us, and we will make the final decision, or we work collaboratively. But in the advisement or advisory part of the business, we don't have the final say. Is it is really the client that makes that final determination, and it maybe on our recommendation it maybe just on our bringing five funds and they pick one of them. Um, it depends on how we work with them. But that's

the essential differences. Who makes that final call. Is there any real difference between assets under discretionary management or assets under advisement. There's no specific difference. I mean, there may be a difference in terms of what a specific client is looking for. So if a client is asking us to look at only large buyouts, um, then sure that's all we're looking at for them. But in terms of the analysis, in terms of looking at you know, which

are the best investments? Why are they the best? The analysis is the same, and it really comes down to then you know, how does it fit in the port folio. And there again it's either our decision in terms of our discretion, we make the decision, or it's the client's decision in terms of saying, I know you love that fund, but it doesn't fit for X, y Z reason that

we're determining. But the analysis is the same. There's been some criticism about performance reporting in some private markets I r R in particular, what's the best way for private markets to report investment performance? Yeah, there really is a lot of criticism about I r R, and I think it's it's misplaced, honestly. I mean, obviously I'm in private equity,

so I'm going to say, well, it's misplaced. But it's not that hard to do private equity on an I r R or a t w R a time way to return, which is how most asset classes are are judged. And so this whole notion that I r R is misleading. It is one measure. The problem with private equity, unlike the public markets is in the public park is if I give you a taller to invest, you go invested in the In the public markets, you invested all at

once and it stays in there. In private equity, if it's a dollar, you commit a dollar and then I invests you know, periodically, it's it doesn't go in all at the same time. And so all the I r R is is a measure of trying to figure out how to determine performance when you're not taking all the money at once and investing it at once. And it's just one measure. And we have a lot of clients that use I r R and then use t w R.

They use different different ways of measuring performance. So yeah, if you're using our our alone, it can be a little hard to then compare it to your other asset classes. But most people don't do that. They really compare it in a number of different ways. So I wouldn't be too exercised about this whole h R R debate. So one of the things we've been hearing is that the

public markets have gotten price. Fixed income is yielding practically zero, and that is creating a lot of opportunity and competition in the private space. Tell us a little bit about what you see in the private equity markets, and for you that includes the debt markets as well. Yeah, I'll look at it from two perspectives. One is from the one you alluded to, which is, um, we're seeing a whole lot of interest in the private markets, um, and

it's driven by the factors you cited. Let's talk about credit. For example, in the credit markets, if you're a public credit investor, you're getting lousy returns. I mean, they're just historically they're very low, and so it drives you to look at private credit because the returns are so much

higher than they are on the public side. And frankly, there's on the private credit side, there's a huge amount of opportunity because when you look at where the public markets provide credit, it's too larger companies, and private credit tends to provide two smaller companies. So there's a big opportunity set there. And with banks having left that market after the Great Financial Crisis, there's there's just a lot

of space for private credit to grow. On the equity side, private equity, you have the same factors at work that you have in the public markets. Evaluations are really high um and there's a lot of competition for deals. With that said, you look at the number of private companies that there are compared to public companies. You look at the number of public companies, I think, what is it over the last ten years, they've they've gone down in

the US. There's just more places to invest in the private side than there is in the public side, and so there's opportunity out there. But I am the last person to tell you that the world is a screaming by because prices are cheap on the on the private side, they're not. You really have to work to get returns. There's a there's a lot of money floating around the world. Right now. Let's talk a little bit about what's going

on with the public markets. You mentioned earlier that the number of publicly traded companies in the US has dropped practically in half. I think the will share five thousand is now down to about Why do you think companies are staying private longer over the past decade. What do you think is driving that? I think it's a couple of reasons. The first is, the most publicized reason, is

the hassle of being public. You read about the costs associated with whether it's more more auditing people, more financial, more compliance, whatever it is. I think being public is just you know, it's a hardship for for many companies, for many executives, and so people would prefer not doing it if they didn't have to. And that really is the second reason why you've seen a reduction I think in public companies is is the rise of private equity.

In private markets, you now have a very very credible alternative financing source for some of the things that you would otherwise have to go public ten years ago. Um, if you want to acquire a company, private equity is there to provide the capital. You don't have to go public to raise the capital. If if you want to take out a founder. If you want to do, you know, whatever you want to do with your shareholder base, you can do it. On the private equity side, there's just

an enormous amount of capital. That is, they're ready to provide corporate finance in a way that before it really either was a bank or the public markets. So I think it's the combination of those two things that has led to a reduction in the number of public companies. So how has all this capital that's been slashing around changed the pe landscape? It's more than just quantity. How is this qualitatively changing that market? It's changed how you

have to go about getting return. I think what has happened is when when there wasn't as much capital, then you really could use just financial engineering. I mean, it was it was a much smaller game in the sense of there there wasn't as much competition for deals. It wasn't as well known on the private I mean you look at twenty years ago, even coming out of the O one two thousand a one downturn, it just was not a normal way to to do financing, to use

private equity. That's just not the case anymore. So what it means is from the qualitative perspective, you need to do something more than just figure out how to lever a company and reduce costs or you know, whatever you did years ago. Um, you have to do something to make that company better. Whether it's an acquisition strategy, whether it's it's an operating strategy. You got to grow that company. And it has changed the nature of how private equity

generates in my view. I think if you look at we run value creation models that say how to how does how is returned generated from these deals? Um, And you've seen a shift over the last ten, fifteen, twenty years into much more emphasis on operating results, much more emphasis on eva dog growth. Um. So that has really changed what you're looking for in general partners, what you're looking for to make money. Interesting. So, Hamilton Lane is one of the few alternative asset managers that that's a

publicly traded company. What's the motivation for somebody that manages private investments to themselves go public? Yeah? Interesting, isn't it. It's the you know, we we we preached the virtues of being private and we're public. Um. I think it's part of the life cycle of many companies. I think for us There were a couple of things that drove it.

One was we were always an equity culture, even when we were when we were private, the mantra around the firm was, you know you you create value, personal value through equity ownership. And and we add well over a hundred of the employees that had equity stake in the company, and I think you reach a point where everyone has equity and they go, what am I doing with this equity? And it's it's amazing. It leads to the question of, oh,

I get what's gonna happen. We're gonna get sold to someone and then everyone's going to realize their equity value. And internally the be in questioning that, and externally people begin asking you that. So when you look at how do I, how do I give people a path over ten years, over fifteen years to realize equity value in their holdings, going public is one of the ways you can do that, and so that was certainly probably the most important factor. The other factor was was the branding um.

What we realized there was a group in Europe, Partners Group that in public and the branding impact was huge. I think in an industry that people viewed as small, the ability to say, you know, we're we're institutional enough, we've got quality controls, we've got sec controls were legit, and and that really mattered, particularly outside the United States. UM. And then the third factor was just the one I talked about alluded to with the equity ownership, was it

tells people you're going to stay independent. I think all the questions about who's going to own you in five years, which is really important in the business we do. People want to know that you're going to be around for ten years. You know, they're signing up for quite some time to be doing these investments. So those three factors made it an interesting way to go, and the markets were open to it where they weren't I don't know, fifteen years ago, you couldn't really think about going public

in the business we're in. So you guys, I p O, what was that experience. Well, it's funny because you're you're all of a sudden talking to public equity people, and you know, we're always used to talking to private equity people. So the roads show all of those things that was that was just a very very different sort of thing, you know, publicly. I know this sounds stupid and probably

says something about how little I know. But in private equity, you spend all this time analyzing companies because you're stuck with them for some period of time. You can't just say, oh, made a mistake. In the public world, it's just a very different experience because they all have a mentality of I'd like to pick the investment, but if it's a mistake, I can always change my mind in a month of week, you know, whatever it is. And so that just a

different mindset. So it was it was interesting. It was kind of getting your your head framed around. They have a different time frame, their perspective, their time horizon is just different from what we're sort of used to as what we do day to day in our business. So does having to report to shareholders every ninety days? Does

that change your perspective on anything? How does that impact how you think about managing a company with over four employees and I know you're international, What do those quarterly requirements due to how you see the world. Yeah, it hasn't changed anything at this point for I think a

couple of reasons. One is we went out as a controlled company um and, which which technically just means that while I don't know if you think something like of the of the equity is owned by management, voting control is something like eighty something percent, we owned voting control. So we don't have to worry about hedge funds buying

us or activists investors and demanding changes. So there's no real pressure on oh my gosh, you know that the shareholders going to demand we do this and vote us out or whatever they do on the on the public side, on those situations, that is a huge factor. It eases all of that pressure. The other thing we are very clear with people is don't judge us quarter a quarter. This just isn't a quarterly judgment business. Uh, you know, we look at it year to year and that's how

we're going to do things. And there's sort of, I believe, a self selection process. Investors or shareholders that want that perspective will buy your shares and others that don't won't. And so we've not really felt a whole lot of pressure in terms of quarterly earnings or meeting numbers. You look at our quarterly numbers, we've we've hit consensus on some, we've exceeded, we've we've we've not met consensus and other quarters, and you know, it's just sort of that's kind of

what it is each quarter. You can't really help that. Huh. Quite interesting. Let's let's talk a little bit about what's been going on in with the pandemic and lockdown. You guys are a global company. You have I think seventeen offices around the world. How early on did you recognize how severely the economy was going to be impacted by the pandemic. I don't know that we recognized it a

lot earlier than most. I think we were so are our offices in Asia closed very early, but even at that point, so this is probably what December there there closing early January. Even at that point, I think there was a feeling that there wasn't a feeling that devirus as contagious as we now know it is UM and so I think we felt that it was probably going

to be contained Asia. UM when we really began to realize when it when it spread to Europe, our European offices at that point in our European clients were saying, uh, this is not that, this is not your average flu. I got news for you people, And so I would say we went into pretty heavy duty beware mode, maybe a few weeks earlier than than general. But as you know,

once it hit Europe, it really started to spread pretty quickly. UM. But I think it's February, it was pretty clear that this was going to be a pretty big impact, if not globally, at least in some very major areas of the world. M quite quite interesting. So are there any advantages to private companies UH during a pandemic and lockdown versus those that are public? How does that impact management

of those entities in very tumultuous, volatile times. The one thing I will say, and not just because I'm in private equity it, but paying some credit to the private equity world, private credit world, the private world, Um, they learned from the O eight o nine downturn, and what we saw really beginning in February. UM. Certainly in the in the Western world was immediate and I mean immediate action saying this is really going to be bad. We

need to hunker down and prepare. And so I would say that the private world reacted far faster, and maybe because they could, because obviously if you're private, you can do things instantly and you don't have to worry about, you know, saying anything in the public or what the public reaction is going to be. And we had we had people talking about, you know, contingency planning in February and putting those plans into into place. But I think it was more driven. I think it was less driven

by the pandemic. Then it was driven by I know what happened in O eight O nine, and it feels like that kind of thing happening again, so let's prepare for the worst, um And I would say that was across the board. It was surprising how quickly it happened. Huh So, so that's a really interesting observation. How does compare to an event like O eight oh nine, or how does it compare to the you know, dot Com

implosion two thousand to two thousand and three. I think we all thought in March that it was going to be almost a replay of oh eight O nine. I think everyone prepared for it um as if we're going to have twelve to eighteen months of just all hell breaking loose, and that's when it all changed, as you know. UM. I think a couple of things were different. One, you had a monetary and fiscal response, in literally the period

of a month or two. That did I don't know ten times what it took the fiscal and monetary authorities in OH nine to do over eighteen months twenty four months. So the speed of the response was unbelievable and which in my view really led to the stock markets certainly doing better, all markets doing better um, and the economy is sort of flatlining and not falling apart. That was

big difference, number one. But the other big difference that only became apparent after a month m was in In every other downturn I've ever been associated with, you could look back and go, here's the companies that did well, and here's the companies that didn't. You know, they had too much leverage so they didn't do well. They had, you know, lousy management, they didn't do well. Whatever you could point to mistakes that were made or things that were done wrong, that wasn't the case in this In

this pandemic, here it was random. If you were in the right industry, you did well. If you were in the wrong industry, you did poorly. And it didn't matter what your balance sheet looked like, it didn't matter how good or bad your management was. You it was kind of the the luck of the draw or the bad luck of the draw. If you're in a pandemic hit industry, if you're in a hotel, if you're in a restaurant, if you're in travel, you're in trouble, and no amount

of great foresight would have helped you. And and that is we just haven't seen that before. It's it's a very very unique situation that way. Sure, after a few months then it became apparent who knows what they're doing, who can adjust to it. But that initial shock to the company, or that initial boost to the company had very very little to do with the genius or the lack of genius of anyone associated with that particular investment. Are your investors aware of that or or understanding of that?

Because I can imagine certain people just demanding performance regardless and markets don't work that way. How empathetic and understanding has the private equity investor class b into what's clearly an exogeneous shock UM? I would say pretty good. I would say pretty good. I think there's still the demand for performance, UM, and so that doesn't go away. I don't. I don't think you get a I think you get a free pass to say, well, I guess what, I

just invested in all restaurants. Um, so you don't get that, but I do think again, conditioned by O eight O nine investors, I was surprised that in March we weren't getting a lot of calls the way we got an O eight O nine of people really saying get me out of my investments, or you've got to do something, or oh my gosh, I don't want to be anywhere near I liquid assets. Instead people said, I get the drill, I understand what happens. Um. I actually would almost rather

be in liquids than in public right now. So I'm not panicking. And I think that that again was more conditioning from from the DO nine experience. Um, And that's how people have reacted. They've they've taken it in stride and again and not something that you would have expected that if you had talked to me in April, I would not have thought that that's how people would have reacted on the investment side, on the private markets. But

that's been the experience really really interesting. Are there any particular areas in the economy that, because of the pandemic, because of the lockdown, have created some opportunities. I mean, I understand no one wants to put money into restaurant chains or or hotels or live entertainment venues, but anything that has popped up because of this that suddenly has become more interesting. Well, here here's the funny part. I think you mentioned three industries where I think people are looking.

So I think one of the things people have to make a decision about today is are they going to be value or growth investors? And I know in the public markets that's the sort of common refrain, but in the private markets that has not been the normal refrain. We really never thought of the world as growth versus value. But as investors, I think we have two choices today, and you can choose to be agnostic and just you know,

do a little bit of everything. But are you going to invest in the growth areas the areas that right now are selling multiples that they were pre pandemic because these companies have done great, whether they're technology companies, whether there's some there's some home improvement companies that have done

great during this pandemic. Their growth companies, they've grown and you believe they'll continue to grow because people this pandemic will go on some time longer and or people's behavior will have changed and they'll be using these sorts of

services and companies longer. Or are you going to pay cheaper prices for assets in those very industries you described restaurants, hotels, um, And you're going to make a decision that those industries are coming back in X time frame in X way like they'll grow, you know, they'll be equal to what they were before, they'll be where you pick your number.

I think that's where investors right now, where we're all sort of trying to figure out where are we going to lean, how are we going to invest, and what are we doing because the cheap prices are in those assets you describe that are in industries that are hit. But do you believe they'll ever come back? They will, I'm sure they will, But when what's the right capital structure for these companies? Um? And what's the right price today?

So so those value sectors you mentioned, the immediate question that pops into mind for private equity investing is is this an equity investment or is this on the credit side. Yep, that's both people are looking at it. That's exactly right there looking at it both ways. Where do I want to put what's my risk return profile around this um and you know what does the company want? Obviously I'm gonna take a lower number if I'm a lower return number if I'm doing credit, but I'm going to have

more security around it. So I think that's those are the areas that people are really big. But even on the credit side, So maybe I want to put my money with a growth company because it's gonna be safer, it's going to grow. I don't have to worry about whether you know, this pandemic is going to go on a year or more and my value company will be hit longer than I thought. It's a it's a very

very interesting time to invest. People have to make some real choices UM and I think unlike pre pandemic, where you didn't have a choice, you either were in an industry that was hit or you weren't. I think investment return over the next two or three years will really be determined by decisions you make today around whether you're going to look for growth, whether you're gonna look for value, whether you're going into credit, whether you're going into equity.

I think people will be making portfolio and investment decisions that will really matter. UM when we look back, when when I have this interview in a couple of years, we will look back and go, oh, my gosh, what was I thinking. I really thought growth was going to continue like this. Let's talk a little bit about what the future of private equity investments look like. But but I have to start with the question of I p O S. I p O markets have been on fire

this year. Does that create a tail wind for private equity? Probably probably everything. Everything is uh, you know, sort of the the good side and bad side. The good side is it creates exits. And at the end of the day, you know, investors want exits. They they want some monetization of their investments, and so the I p O market provides that. It also provides another path. It's not it's not the only path it gives. It gives a company.

If I'm going to say I'm an I p O that almost automatically attracts strategic investors UM, and so I'm creating an environment where they investment will probably do petter because there's there's more interesting ways to to exit, and it creates a competitive environment around that exit price. UM.

The bad side of it is twofold. One is that it creates on the buy side, it creates a competitive market with a higher price generally I p O s or higher priced And so if I want to buy company X, they say, well, you can buy me, but you're gonna have to pay twice as much as you just said because I'm an I p O. So it has that sort of effect on my ability to invest in some companies. The other thing it does is it creates some pressure, interestingly for private equity of keeping up

performance post IPO. You saw that part of the reason some people were skeptical about private equity, and you know eight was because the companies that they took public in six oh seven didn't perform as well as people wanted, and so it took a period of time for private equity to regain its credibility in the public markets. Um. And so that as just another layer of pressure, if you will, in terms of private equity and the scrutiny on its performance, because it's not just performance as a

private company now, it's performance at a public company. So so let's delve into that a little bit. If you're evaluating a private investment company to determine whether or not you want to put your own personal money in there, what would you be looking for? What, what sort of questions would you ask management? I I always think that one of the most underrated things in investing is the

quality of the management team. UM. I think that is that is where, yes, the financials are important, and they always are. But does it relatively straightforward to to analyze it. It doesn't. It doesn't take a rocket scientist to figure out, you know what, what kind of interested exposure, what kind of interest cost a company compare. You've got to make

some judgment about whether that industry is right. But at the end of the day, I mean we've always said this that if if you've got the right management team, the right culture around that management team, you can have the wrong business strategy and you'll probably be okay. But the opposite is not true. You can have a great business strategy, but if you've got a lousy management team, a lousy culture at that company, you're probably not going

to do well. And so I think the first question is around, you know, how does this management team work, what are their motivations, how do they think about the future, what are they looking to achieve? I think those are the things that that you end up spending a lot of time around um and that are not really quantifiable.

There's a whole raft of quantifiable things you can look at, but there's an enormous qualitative element um And I would say if you look at some of the best investors, one of the things that's always struck me is how some people are just really good at judging human talent um and they do a great job of picking the right management teams and picking the right people to go into management teams. So I think that's an under appreciated

art of investing. Quite quite interesting. So there has been increasing chatter about private equity potentially finding its way into uh smaller than accredited investor portfolios, including four O one case. What are your thoughts of private equity becoming I don't know even know if normalized is the right word, but sort of becoming just another asset class option. Yeah, I'm

probably in the skeptical camp on that one. Um. I think there are there are on a good side, I think it is Look, it's a it's a it's a good returning asset class um and so people should have access to it. But it's also an asset class that doesn't have the kind of transparency that the public UH markets have. It's an ethnic classes, as you talked about.

The r R has a different way of reporting, a different way of money flows coming in and out compared to public equity, and so I think we all have to be really careful about assuming that this should be a great four oh one K or retail investment option. UM. To me, it's a little bit like what happened with

real estate when they created reads. I think that I think that it will take some some legals, changes in regulatory structure and law in order to create structures that make private equity UM a good investment choice for the retail investor. And I'm not sure that having the retail investor go into some of these structures is really the right way to go back. I worry about it. I worry about what happens in a downturn when investors go, wait, I didn't you didn't tell me that this was going

to happen UM. So I would say that, yes, it is an asset class that will be an increasing part of high net worth channels um UM. But I am skeptical that existing structures are really going to be a way that retail investors will be happy with their experience with private equity. So you mentioned one of the obstacles is the lack of transparency. What could the industry do if it wanted to become more transparent, Well, I mean, the thing it would have to do is provide essentially

daily pricing. The thing would have to do is provide much more transparency around um operating performance at companies. And and you know, there, there, you're in that struggle with the whole purpose of private equity. Is that is that you're not doing that? And so you know, are you twisting the very one of the very things that makes private equity interesting in order to to allow other investors or to give access to other investors to come in.

That's that's a tough one. I think it is. It is the fundamental daily pricing that is just a completely different thing from what how private equity operates. That makes it tough to say, Okay, we're going to be exactly like our public equity brethren and do it this way. I don't I don't have a great answer other than to say the reachs did it, but they did it

in a in a completely different structure. And had tax changes that allowed them essentially to create a basket of companies UM and that worked, and I think if you do it that way for private equity, I think that would be an interesting way to go. Yeah. The the nice thing about reets is is it sort of solves the K one tax issues. If you're going to have a hundred separate private holdings, UM, so somewhere between an E t F and a RED might be one situation.

I know there's a lot of reporting and custodial issues, but how on earth could you possibly get a daily price from a relatively small private company that that becomes all but impossible. I you could barely get annual prices. Really quarterly prices, what are they? How much does a private business really change month to month, quarter to quarter? It doesn't. I mean, I think some of the things that you've seen it people talk about is essentially an

algorithm that mimics. So private company is in it makes drywall, and so you get a basket of public companies that are in that industry, and then you apply it's daily changes to that private companies changes. I mean, it's a synthetic. You're not really pricing because at the end pricing is a matter of of a buyer and a seller, and you don't have that in the in the private context, so anything you do will be synthetic. Quite quite interesting.

Let me switch gears on you and talk a little bit about E s G environmental, social and governance issues. Last month Hamilton Lane created a position to formally lead your efforts in that space. How is E s G and impact investing playing out in the private markets and are you seeing any sort of demand for institutional investors for this? I would say, if you, if you project out a few years, what will be the biggest changes in the private markets. I think E s G will

be up there. I don't know it's number one, number three, but it'll be up there. Um. And it's been an important factor for some time, but I think interestingly the pandemic will make that even more of a focus. Whether it's because people go, the reason the pandemic happened is because of human encroachment on nature. Whether it's because people go during the pandemic, we've seen that, you know, we we can reduce our reliance on certain things. There's just it is. It is going to be a part of

everyday conversation, and I'll divide it into two parts. The one part is have we seen more interest in impact investing or E s G focus investing. I would say there's a little more interest in specific investments targeted in those areas, but that's sort of been a generally increasing part. Where there is a really increasing focus is on E s G as a criteria on every investment you make. So it's not to say I am going to make an impact investment because it will have X, y z

impact on the environment. Every investment will be analyzed. And we're getting more inquiries around this than than we've ever had. What is what is that investments impact on the environment, How is that impact, how that investment um what is

the governance around it? So I believe that just as we all have become accustomed to looking at an investment and saying, what is the projected EBA DAT in year three, you know, whatever it is, I think we will have every investment report, every investment analysis look at a deal under a set of E s T criteria and and we will be we will be judged by that as

part of our investment performance. I've heard from a number of different analysts who look at the s G not as a sort of progressive versus conservative political battle, but rather in context of, hey, this is a methodology of

doing certain types of risk screening. UM. You don't end up with the sort of me too movement that in companies where there's diverse boards and promotion for women and people of color, and you don't end up with the sort of UM disaster we saw in Gulf of Mexico a few years ago, UM with with a giant oil spill when you're screening for e s G. So the bigger question is is this merely a risk screening tool? What what is the impact of this when you're looking

at private companies. Well, it's certainly a risk screening tool, but it's also a return enhancing tools. So, for example, UM will take a consumer oriented company. Will consumers respond to a company that has a more diverse board, a more diverse management team? Will consumers respond better to a company that is making efforts to promote UM UH to

retard climate change. I think it is becoming, yes, certainly a risk factor, but it is becoming a factor of my business will do better or it won't get hurt because I'm perceived as a company that is indifferent to the environment or indifferent to social factors, or isn't governed properly. Um. So, I think as we look at it, it is it

is both. It is both a defensive and offensive part of generating return and and reducing risk and to stay, I don't think this is a sad we've crossed whatever line you crossed when you say, now this is part of mainstream investment analysis. Huh that that's quite quite interesting. I wanted to address, um, one of the issues you raised in terms of government, in terms of governance and

diversity on boards. Hamilton Lane was recently named International LP of the Year by the Private Equity Women's Investor Network. Our industry is very underrepresented with women, with people of color. What does that honorific mean about your approach to diversity. Well, I feel like, you know, pat ourselves on the back. I feel like we have always been very, very conscious of the importance of diversity for for us as a

firm in terms of being a better firm. It did it just it just matters to us, and so I feel like we've always been at the forefront of that in terms of our industry. But you're right, our industry is not great, both financial industry in general and private equity specifically UM and so I'm I'm very proud of that honor. I think it it says that people recognize that we are we have done a lot in terms of diversity, but we need to do more. I mean,

it's as simple as that. It is still we need to do more both for Hamilton Wayne and we need to do more in terms of making the industry more diverse. I mean, I think the good news about being our size and having our place in the industry is that we we have an ability um to to frame the conversation and make sure that where we're investing, diversity is one of the goals that are investee companies, that our general partners understand is important to us and to our clients. So,

you know, it's it's a process. We're very happy with where we are, and you just gotta keep you gotta keep moving. So I know you represent Hamilton Lane on a couple of boards, both boards of advisors and boards of directors. What sort of h what does that work like? Do you enjoy it or do you feel like you really have input into some of the companies you invest in?

Or are these really more just advisory positions. Yeah, I'm more on on the advisory side, so I'm not I'm not a huge fan of advisory boards, to tell you the truth. People always laugh at me about about that. Um, they're fine and they're good in terms of particularly when it gets to talking about conflict of interest issues. I think they're important that you have a board to do that.

But in terms of getting information, in terms of providing feedback, in terms of the kinds of things that really matter in shape how how groups invest, I think the smaller meetings are still more important. I don't know that that advisory boards really accomplished as much as you want them to. As I said, I think that their ability to appine on conflicts is important, and the fact that they're there and provide a way for the general partners to be

more transparent is important. But as a decision making body, I'm not a huge huge believer in that. Alright, let me throw a curveball at you. Tell us about the Hambletons. So that is a curveball. Um, we have a house band essentially, it's uh, I don't know. There are twelve or thirteen of us, and we do well in the pandemic. But we do a charity concert every year. Uh, and it's fun. You know. We get six or seven hundred people, We pick a charity that we want to give to

whom we give the proceeds. Uh, and it's it's a good outlet. We have I don't know, four or five singers and like every other band, they're the DeVos and we do whatever they want us to do. I play guitar poorly, but I play and it's it's fun. I think people enjoy it during the pandemic. What we've done is we've probably every month we do a song. You know, we'll do it virtually and then someone puts it together and then we send it out over a Slack channel.

And it's it's fun. People enjoy all different genres of music. I can imagine that being fun when I when I sort of happened across that in our research, I said, I have to save that question because it does look like fun. So music the big deal for us, you know. So our conference rooms I don't know if you know this, but our conference rooms are we don't have like the Lincoln Room or the room or whatever, you know, whatever

people name things. We have on one floor we have guitar makers Gibson, Sender, Martin, and on the other floor we have guitar players. So we have the event haling Room, Jimmy Page Room, Jimmy Hendricks Room. Just the music is a big deal for the firm, and so it's always been that way. That's quite interesting. UM So let me jump to my favorite questions that we ask all our guests and and let's see how you how you manage these. UM tell us what you've been streaming under lockdown? What

are your favorite Netflix or or Amazon Prime shows? What are you listening to? What are you keeping yourself entertained with? So that I hate to say this, but I don't. I don't listen to podcast. I hate I shouldn't say that, right, I don't think anybody. Yeah, well, why don you get to your favorite books? I'm gonna that's that's my third question. But this question I am. I am a big stand I'm a big fan of um of of ms streets on on Amazon. I watched things like Shetland, Borderland River.

I love those kind of Scandinavian noir h mysteries. I love them. I just watched these things Look at Night, my My wife is similar, and I remember her watching UM the Original Woman with a dragon tattoo in I think it was Danish or or she the not the Swedish person. The Swedish version, yeah right, and when when the US version came out, she's like, Nope, no interests. So those terrible. It was terrible. The Swedish version was compelling.

Tell her to watch River. I don't know if she's seen it, but Rivers it's a one season show on I think it was Amazon. I camera his Amazon Netflix. Just phenomenal if you like those sort of odd mystery short seasons. Have you ever seen The Room? I believe that's on Amazon Prime. Also I have not. I have to watch that one. The Room very interesting cast, really sort of borderline sci fi supernatural, but intriguing and definitely worth worth playing with. UM. So let me ask you

this question. Tell us about your mentors who helped shape your career. UM. I would say, certainly, in the private equity world, there have been a couple of general partners who I have viewed as mentors, who I've turned to for advice, who I've turned to for for um for help. But I would say my main mentors, interestingly were teachers I had um in college who I remained close to over the years. Um. They they were an enormous influence

on my life. So I would say I've always said this to people, just the teachers you meet in your life have an incredible can have an incredible influence on what you do in life and how you do it. It's a it's a surprising thing as I look back and think about that you mentioned reading. Tell us about some of your favorite books. What are you reading now and what do you like to recommend to people. I'm a I'm a fiction fan. I don't I don't read

a ton of nonfiction. I don't read business books or how to or you know, the good the great kind of stuff. Um, and I just I like all sorts of fiction. What did I just at eleanor get the exact title eleanor font is okay? Um? What have I read? I read recently Americana? Um books like that. I just all all sorts of different kinds of books. And uh, what sort of advice would you give to a recent college grad who was thinking about a career in the

private market space? Um, what I would tell them is to be a little more flexible and open to changes around what you're doing and how you're doing it. What I find is a lot of people coming into the private markets have a very very fixed view of what they want in life and how they want it, and it just doesn't happen that way. The markets. The world is going to change over the next five or ten years.

It always does, and and people just need to be way more open to trying different things, doing different things, experiencing different things. I worry a little bit about, Okay, here's how the private equity career span works, and that's what I'm gonna do, come hell or high water, and people just need to and coming from me and kind of rich, but go with the flow a little more. H good answer. And our final question, what do you know about the world of private equity investing today that

you wish you knew thirty or so years ago? What do I know today that I wish I knew thirty years ago? I think it's the advice I would give who have given myself the same advice that um, it is not going to look the way it does, and you can't you cannot. I wish I had known that you can't assume that things are going to move in any sort of linear direction. UM. Had I known that, I think I would have been more aggressive about pursuing certain changes. I would have been just more open to

certain changes. I guess I just thought things were going to since it had happened that way before, it was going to continue largely to happen that way going forward. And that's not how it happened. Uh. Quite quite fascinating, Mario. Thank you for being so generous with your time. The when when this nonsense is all over, UM, we'd love to have you actually in the Bloomberg building to do

this live and in person. It's it's a different experience. UM. We're all trying our best under lockdown, but I'd love to have you back to to continue this conversation. I'd love to do that. I mean, it's interesting. I've said to people, I'm I'm an introvert and I thought this would be right up my alley, like I would thrive. And what I've realized is the ability to see people in person, the ability to exchange five minutes in the hallway, UM, is a vital vital to how we operate, how we live,

how we learn. UM. And it's just it's amazing to me how much how much I miss it, and I suspect how much we all miss it. So so let me slip in one final question. All this talk about the end of cities, the death of the office, the ability for everybody to work work remotely, how much of that is just hype from within the lockdown. And as soon as we get the opportunity to kind of return to normal, a lot of things might end up going

back to the way they were. I think I think we will return much more quickly to the way we were than anyone anticipates. And I offered two anecdotal things. One is looked at China where they basically gotten rid of the virus um it is and and people I know in China tell me it is largely the way it was before. Other than international travel. People are going to movies, people are going to restaurants, people are going

to parties, and I think we will be the same way. Um. The other thing that's interesting is just at Hamilton Lane before the pandemic, we were moving our offices in March. Before the pandemic, we asked our employees whether they wanted to work remotely, meaning did they want to be in the office less than outside the office three days a week or more, and it was something wanted to work remotely,

that this was really good. We asked the same thing a couple of weeks ago, because we're going back to the office on a voluntary basis, like one day a week if people want to go back. In certain groups out of the client and investment teams, one percent of the people said they did not want to work remotely, did not um And I think that's it's telling. I think people before this pandemic and during the pandemic, there's both the feeling of uh, you know, changing the way

we live as good and during the pandemic. Nothing will be back the same. No, it will come back much faster. Sure, business travel might be a little bit less because we've all realized we don't need to go all over the place ten times a year, but leisure travel, all of the stuff we want to do together. It will come back very very quickly once once we're certain we're not going to get the the virus. Thanks Mario for being so generous with your time. We have been speaking with

Mario Gianninni. He is the CEO of Hamilton's Lane. If you enjoy this conversation, well, be sure and check out any of the other fifty or so we've done over the past six and a half years. You can find those at iTunes, Spotify, Overcast, Stitcher, a cast, wherever you're in. Your podcasts are sold. We love your comments, feedback and suggestions. Give us a review on Apple iTunes. Write to us at m IB podcast at Bloomberg dot net. You can check out my daily reads at rit Halts dot com.

You can read my weekly column at Bloomberg dot com slash Opinion. Follow me on Twitter at rit Halts. I would be remiss if I did not thank the crack staff that helps put together these conversations each week. Tim Harrow is my audio engineer. Michael Boyle is my producer. Michael Batnick is my head of research. Atika val Brund is our project director. I'm Barry Rit Halts. You've been listening to Masters in Business on Bloomberg Radio.