Two and Twenty by Sachin Khajuria

Author:Sachin Khajuria [Khajuria, Sachin]
Language: eng
Format: epub
Publisher: Crown
Published: 2022-06-14T00:00:00+00:00

With that final sentence, the penny drops. The Founder has thrown down the gauntlet to critics by being frank about the balance of power in the asset management industry. He came out fighting, but without looking like he was fighting. He was not defensive about the Firm’s recent issues, and he knows that the bombshell of doubling assets under management to over a trillion dollars and joining the S&P 500 index is enough for the chatter to shift from the past to the future. He’s pivoted the story.

The S&P 500 is one of the most important stock market indices in the world. Admission to the elite club of companies that form part of the index requires specific criteria to be met, including market capitalization size and the percentage of shares in the public’s hands. Several trillion dollars in passive vehicles such as ETFs track the S&P 500 as a proxy for the large cap U.S. stock market. If the Firm’s stock were part of the S&P 500, major passive fund managers would buy the stock automatically. In turn, this demand for the Firm’s stock would likely support the stock price—and raise it in line with greater demand. So far, in the private equity industry, no other firm’s stock has ever been listed on the S&P 500. The Firm could be the first, and this move could add to the impressive list of pioneering achievements that the Founder has led in the industry. And since he is a major stockholder in the Firm, this move would also increase his net worth—and that of all of the Firm’s employees who are rewarded in stock as well as in cash.

It’s also true that pension funds and other investors in private equity funds might end up gaining exposure to the Firm multiple times—through their fund commitments and, if they invest in passive funds like index-tracking funds and ETFs, through the Firm’s stock as well. This may already be the case, but if the Firm’s stock were to be included in the S&P 500, it would be much more so. A double-dip of retirees’ trust and capital.

What is striking about the Founder’s PR maneuvers here is that he did not react to the crisis. He responded to it. And he did it on his own terms and in his own interest. He did not behave, like so many public figures in business and politics, like nothing wrong had been done and there was nothing to reply to. He was not the corporate executive acting like he was coated in Teflon, determined that nothing would stick. His reply was to spell out in simple terms how the Firm and he would learn from the past and grow better despite what had happened. He succeeded in sounding humble when calmly laying out how the Firm would set aside the issues and still progress.

The Founder demonstrated the most elusive trait of big success in private equity over the long term: the paramount importance of temperament.

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