Alan Waxman - Building Sixth Street - [Invest Like the Best, EP.433]

22:48And I think just the tunnel vision of ignoring not only the risk units on that particular deal, but the risk units of what's around you. That's one of the biggest mistakes that people make. And I don't know if people are surprised by that, but it's very hard to evaluate risk units if you're only looking at it through one lens versus multiple lenses. That's what we learned back in 2001, 2002. We had all those 10 disparate businesses where no one was talking to each other. And that's why they were actually put together. I give David Vineyard a ton of credit. Probably the best CFO, in my opinion, ever on Wall Street.

23:24He is one of my mentors. He is exceptional. We're the biggest investor out there back in the late 90s and early 2000s. And there was a bunch of loss-making businesses from all these disparate principal investing businesses. And that's why Goldman put them under one umbrella. I think that pattern of not thinking about things in a siloed way versus the overall periphery, I think that's what we're going to be talking about sometime here in the next two to three years. To continue to contextualize this notion of units of risk today, what do you think are some of the maybe overlooked sources of risk in the system as you see it, since you get to see it from every angle?

24:02And this is early summer 25. We have experts at Sixth Street. My partners, Marty Chavez, who's on the board of Google, and Adam Korn, and Rand Goldman Sachs, and Jeremy Biss, who are experts on AI. So I'm not an expert on AI. But I think one of the things that you've talked about on your podcast is just the whole transition. Once the productivity gains start to come, there's obviously going to be job losses and just the transition to sort of remobilize capital. How's that going to work with the real economy. I don't think enough people are talking about it. One of my good friends, Jeff Weiner, former CEO of LinkedIn, he's the chairman, him and I have been talking about this for a while.

24:43And I think for the first time, Anthropic CEO actually came out and said something publicly. So what I'm worried about there is that we're so focused on competing with the US stated against other countries, specifically China, the MAGAC, and they're all focused on competing with each other. And I don't think there's enough people talking about how we're going to manage this transition as, again, there's going to be lots of productivity gains, which I'm all for, but there's not enough talk about that. It should be code red people talking about it and that's not happened. So I'd say that's one. I think the other thing, and I think it's an opportunity, look at the average wealth investor.

25:21So the wealth channel, they're underexposed to private alternatives relative to say a pension fund at 40 % or an endowment at 50%. So at three to 5%, that should probably go up. But again, the transition, everyone's all about the wealth channel, everyone's talking about that, the transition to do that in a way that's responsible to those wealth investors, those end market. And I think getting to the right structures so that that's done in a responsible way, I think that is something to watch out for. Jamie Gates, the godfather of Sixth Street, one of the things he taught me early on is just because you can raise capital doesn't mean you should.

25:59As a manager, just because you can raise it in the Wealth Channel doesn't mean you should. And I would espouse that advice to all of our people in our industry. So I want to keep telling your story. After Goldman, but before TPG, what were you doing then? I actually told David Vineyard, who was a mensch in March 2008, that I wanted to basically rebuild what we did at Goldman, but doing a more entrepreneurial backdrop. I stayed through 2008 just to make sure everything was well because I wouldn't have felt good if the rails would have come off. There's no way I was gonna leave those guys at that time.

26:34And then I took six months off, got married, went on a honeymoon. But before that, really started constructing the idea of Sixth Street, which was formulated in a business plan called Project Austin. Project Austin laid out our values, our culture, our investment philosophy, all laid out our five-year strategic plan, which is a big thing at Sixth Street. We're now in our fourth five-year strategic plan. We've been doing that since day one of the firm. And that set out the idea of Sixth Street. TPG, we're set up a little bit differently. So we were never employees at TPG. We never gave up control of our business.

27:10We always controlled investments, hiring decisions. We were kind of a firm within a firm. TPG had a minority the equity stake and were great partners for while we were together. But that's how it all started. Say more about these consecutive five-year plans. How do you do that? Our view on business building is if you don't have a compass, it's hard to know where you're going. And more importantly, it's hard to get everyone on your team matched up with that five-year strategic plan. We just finished our five-year strategic plan. It's an 18-month process. Was 200 pages. I mean, this is hundreds and hundreds of hours of all the partners debating and trying to really narrow down what it is, the direction of the firm.

27:47We first started our 2015 plan, what we wanted it to be. And most recently, our 2030 plan, we typically have 80 ideas. We narrow it down to 40, what we call subplanks. And those are organized under five strategic planks. We'd actually just present it to our entire firm. But what we try to do, and this is something we learned at Goldman, is we basically take that five-year strategic plan, we break it up into one-year increments. And then we have every person at the firm do their own personal business plans. What we always say, and this is from day one, is that we want the summation of all those personal business plans to equal the five-year strategic plan.

28:23So we're matching every single person in the firm with the clear mission of what we're trying to do and what we'd say in our parlance, climbing up the mountain together. And that's just been a process. And it's something that we take very seriously. I think it's by, We spent 18 months and hours and hours of debating it and thinking about what we want to be and how we want to go about it. But it's something we've been doing. And it's our North Star. It's our compass. It's everything. And it's an important part of the process and the business building of Sixth Street. Can you talk us through the opening chapter, chapter zero or the prologue and chapter one back in 2009 or so?

28:57And what was going on? What the biggest challenges were? I'm always interested in how these firms get started and what challenges they have to overcome. Because often those are like the formative periods that then last a long time. We're values driven firm. Our values are number one, what we call our one life principle. You have one life. Do you want to be average or great? Everyone wants to be great. So that's the first thing. We want people that are all in. It's a competitive world out there. We want people that are all in. The second thing, and this goes back to one of the things we're talking about is we want curious people that are constantly learning, that actually are constantly trying to grow.

29:33So if you think about the idea of having to develop new themes every year and new ideas, we need entrepreneurial people. And then the third thing is a one-team culture. So people that are over themselves, no politics, no egos, no BS, just so we can all talk to each other. So those are the values. We always said we wanted to be the largest startup in the industry. That's literally day one. We want people that can play tennis so they can debate, not the, my baby's the prettiest type people. And then the last one, this is something my dad taught me about facing the tiger. My dad's a crazy person.

30:05He's like a black belt, yells at the TV. He's probably listening to this, but he's a pretty tough guy. But he always taught me growing up, you got to learn how to face the tiger. By the way, when you go to Sixth Street's offices, literally, you get off the elevator, there's a big tiger just staring at you. And there's three elevators. And no matter what elevator you get off, it's staring at you. Is there a sculpture? It's huge. Five feet. You'll come to our offices one day. The idea on culture is that when something goes wrong or there's a challenge, you go through different things. Most people are like pointing their fingers at other people or they're it's not my fault or they're running away.

30:37At Sixth Street, we're like, good, let's go. And we say, let's face the tiger together. The first thing is defining values and culture in our investment philosophy, which we spoke about. But then what's our genetic code? For us, the most important thing about our genetic code is we want to be an investor first firm. We love investing. We love this idea, this process we go through. We love meeting CEOs and management teams, particularly today where it was starting to happen back then. There's a little bit of asset aggregation. Now it's a completely different thing. Our ethos and what we want to be, we're investors.

31:11If you talk to our partners, the day we become not an investor first firm, we're not here. That's literally number one is every review process, every person we hire, it's designed around people that love to be investors. So that multi-strategy, so this idea of the world's dynamic, it's always changing, laying that part out in terms of being a multi-strategy investing firm, migrating the best relative risk units and return units, thinking about that. And then the last thing is that whole cross-platform collaboration at scale because our business model doesn't work if we don't have that cross-platform collaboration at scale because otherwise information and relationship get trapped in fiefdoms and silos.

31:50Sixth year, we have 10 investment platforms all organically built. All the people, the business leaders at each of our investment platforms, they all talk to each other all the time. We're all trying to think about where's the best place to think about comparing risk units and return units and obviously places where we can be value-added partners, the CEOs and management teams. What are the dimensions of facing the tiger well? If you were teaching a college seminar on how to do this, what would you tell the students? Human beings' natural reaction when there's a problem, and you can see this in so many facets of life, the first thing is to run.

32:24Particularly in our industry, I saw this happen in other groups at Goldman. I've seen this happen in different companies, and I have friends that have told me stories. All of a sudden, there's a problem or there's a bad investment, and all of a sudden, everyone starts to try to distance themselves from that and try to point the finger at them so it's not them. Or some people freeze. They start to get hyperactive and they start to make rash decisions. And for us, let's go. We're going to do it together. There's one of our worst investments of all time. It was a plastic bottle company. Only time at Sixth Street, knock on wood, we got defrauded.

33:00We made a structured equity investment, a company, I won't say which one, but a European company. I'll never forget, we were in the room in New York with 30 people. There was a bunch of different investors, a big company. we figured out that they had defrauded not only us other investors and i'll never forget we went to pj clark's in new york the burger place and there were like five of us there and we went over there all from different groups we knew things were not going as well and we're like holy shit what is going on here and we're like let's go steven plus you're gonna do this sam didder you're gonna do this i'll do this borna you're gonna do this and we just started doing we called on some other people.

33:39We literally had a team of 12 people, all different parts of the firm doing everything we could. And the reality is we ended up getting 50 cents on the dollar. We should have gotten two cents. And it was all because it was just game on. And that's what we do. When things are going well, obviously you don't have to do that. But again, what we always say, that's what defines cultures. And you have those moments of what are you going to do in this situation? Are you going to do the right thing? Are you going to come together? Are you going to point your finger at someone else? What are you going to do?

34:08And our whole thing is let's face the tiger together. And that's what we do. I would love to tell the stories of the Spotify and Airbnb investments that you made. People know those names, so it's very relatable. But also I think are good examples in the mid-2010s, a little bit later with Airbnb, of how you do business. So maybe start with the Spotify one and just tell that story. We love Spotify as a theme. We love live music. It's hard not to like live music when you grow up in Austin, Texas. But great product, great unit economics. But if you remember in 2016, there was starting to be a lot of commentary about threats from Amazon, Apple.

34:45There was a cloud over the company at that time. A lot of people don't remember that. So there's a little bit of volatility in the markets. But more importantly, people were worried about the competitive threats. When this came in as an opportunity, obviously, we had a number of themes, technology businesses or software businesses that we thought had really good unit economics. This was one of the tops of the list. That was at a time when they weren't producing cash flow, so they're still creating cash flow losses. They need some liquidity. So our investor group stepped in. We gave them a billion dollar financing, a convertible instrument.

35:17Obviously spent time with Daniel. It takes one second to figure out that guy's generational. The rest of the team that Daniel had put around him was great. Barry McCarthy at the time was a CFO, really smart guy. And then everyone we met on the management team, mission aligned. They had values. They had a culture. it was very clear everyone was on the same page. And sometimes in companies, you go in and you talk to the CFO, what's the vision? And that's different than the CEO, different than the head of revenue. And for them, it was just very clear that they were just dialed in. They obviously had first mover advantage.

35:50It ended up being a great investment for us, but it was a little bit contrarian when we made the investment. Maybe say a little bit more about the security itself, because you can operate at any part of the capital structure or whatever, like you said, I'm always curious the actual way you did it. On that one, what they were trying to solve is at the time, they didn't want to raise common equity. Because of the competitive threat from Amazon and Apple, or perceived, I should say, because the market volatility, they didn't want to sell equity because it was going to be at a lower equity than the last round.

36:22So they were looking for more of a whiteboard solution. Literally, Barry McCarthy, whiteboard, what are we doing? And he had certain principles and we just tried to solve around those principles. And that came up with, it was a convertible debt instrument. It had a cap. I think the cap was at$25 billion. It had a current yield component. And then obviously the whole idea was to bridge them to get public. So it was like a pre-IPO security to bridge them through that. And ultimately it was successful and went way through the cap, which created a win solution for them because they got to their IPO, which they were very focused on doing for a whole bunch of reasons.

36:58and for us, it worked out. It was almost like an engineering and whiteboarding. And again, a lot of times the ideas aren't, here's the holy grail idea. It's from just talking, playing tennis, asking questions and listening. And that's what we do. That's what we train our team to do. How to ask questions, how to listen. That's literally the process that we went through with the other investors. Before we get to the Airbnb story, can you talk about Tao and the unique nature of this massive pool of capital that you've created that can do whatever it wants? I'm always fond of this idea that what you end up getting from an investor reflects their capital base, who it is, the duration, the terms.

37:34They then ship their capital base in the form of investments. And so I think understanding Tau and the overall structure is important. When we were doing Project Austin, we literally studied every GP. We had case studies on every single GP, what they did right, what they did wrong. We also spent a lot of time on figuring out some of the GPs that were big brand names and then just faltered away. What we concluded, and this is a pretty obvious thing now, but where people get into trouble as they raise larger and larger funds in a strategy that maybe it's the right time to raise a larger fund, but maybe it's not.

38:07What's the opportunity set? They kept raising larger and larger funds and we didn't want to have that pressure. And this was getting to tell, we want to design our architecture, our 6G, which is different than any GP out there, at least the ones that I know, as an investor-first architecture. And what we did is, although we have 10 investment platforms at Sixth Street, each one of the platforms. So think about our growth business. If we didn't have TAL, we'd probably raise an$8 billion fund because we want to be able to do the larger deals. But because we have TAL, we want to keep the fund sizes to the level of the opportunity.

38:41But we also want to be able to do the largest deals in the market. I mean, we want to be able to do the billion, two billion. We're one of the few handful of firms in the world that can consistently write billion-dollar-plus checks across asset classes. but architecturally, we keep our investment platforms funds at modest sizes, matched to whatever the opportunity is over whatever the investment horizon that fund. And then we have this vehicle called TAL on top, which is effectively, in our words, was when we first raised it, the synthetic Goldman Sachs balance sheet, which could do anything. Obviously, with the same principles that we've had for the last 25 plus years, we started investing at Goldman.

39:16That gives us stability in a growth deal. Let's say that the next Spotify deal comes and let's say it's a$2 billion deal. Well, if we only have a$4 billion growth fund or$3 billion growth fund, there's no way we're going to be able to do that in the growth fund. But by having a$30 billion fund over the top across the entire firm, we have the ability to keep the fund sizes small, but at the same time, speak to the larger deals. And then also anything that doesn't fit with any of our investment platforms, we have the flexibility to do that. Tau is flexible from asset classes. So it's got everything in there, real estate infrastructure, private credit, growth, mostly private, but has the ability to be public.

39:54It can go anywhere on the duration spectrum. So it could do a two to three year investment, but we have investments in there. We have a strategic partnership with Real Madrid and also a strategic partnership with FC Barcelona. We're probably the only people in the world that actually partners with Real Madrid and FC Barcelona because they trust us. but those extend further than 10 years. So we have maximum flexibility. You're unconstrained because again, that's what we learned at Goldman. The world is dynamic. It's always changing and you need that flexibility because you never know at that particular time or this particular environment, where's the best opportunity is going to be.

40:30We always want to have that flexibility to migrate to wherever the best opportunities are. I think the most important thing about Towel is that it's consistent with who we are as a firm and our ethos about we want to be an investor first firm. Now let's go back to Airbnb because I think this is like a classic early COVID example of the returns to flexibility. We were one of the few firms in the world playing offense at the beginning of COVID. And the reason we're playing offense because we had a good defense, very similar to what we saw in 06, 07, we started to see those same dynamics, tunnel vision of investing.

41:03We started to see some of those same dynamics in 18 and 19. We couldn't have called COVID, but things were getting skewed in a wrong way. So we protected the portfolio. We're in a position to play offense. Right when COVID hit, we went around and said, what are the best business models in the world that are most impacted by COVID? Think about 60 people across Sixth Street, working weekends, all day, every day, trying to figure out our 15 to 25 themes before COVID. Throw out the door. And what are our next 15 to 25 themes? One of the themes there was best business models most impacted by COVID.

41:39Airbnb, great business model. If you remember at the time, there was a lot of negative press on Brian Chesky at the time, which was, by the way, unfair and unwarranted, but there was a whole bunch of stuff going on at the board that didn't deter us. So we literally started calling into the board, people we knew on the board, calling in the bankers, because we didn't have a pre-existing relationship with Brian, but we knew people that were around him and ultimately came in. And that was an interesting time because the thing that Brian did that was really smart, he did a lot of things that were smart, the way he operated through that.

42:12And the first time we met him on a Zoom call, he had a lot of advisors. And despite all that, his values, the mission, the principles were all the same. We talk about a lot of special humans today, Daniel and Brian, David Vigneur, special humans, but they wanted to fortify their balance sheet so they could play offense. We and our friends over at Silver Lake basically gave them a billion dollars, was in a loan form, had some warrants attached to it, ended up getting them through the period. Obviously, things started to get better. But the most important thing after that happened, they were able to start playing offense versus playing defense.

42:49And I think the other thing it did is it really solidified what we already knew that Brian was such a great leader and he was able to get this done. I'm curious, again, in your framework about what do you need units of risk were in that specific transaction relative to those returns? That one was, first of all, we had to be right on the business model. So from afar, we wanted to make sure that the business model, what it was. The second thing is they wanted to get it done in seven days. So we had a team at Sixth Street in Asia, a team at Sixth Street in the US, a team at Sixth Street in Europe.

43:23So we had to do all that in a compressed time period. It was at the beginning of COVID. There wasn't a vaccine or anything. So our view is for us, it was as much about the fundamentals of the business as it was how much liquidity runway can they have. And we had to make the bet with that liquidity runway that there would be a cure, something would get better. They obviously had a lot of leverage to manage the business, but it gave them up to like four or five years of liquidity. This led to another theme on sports and live entertainment because we learned that we like experiences, humans like experiences, but that was our analysis.

43:54So the fundamental business analysis, make sure everything in the unit economics were what we thought, making sure that the management scheme and the CEO were what we thought. But the other thing, it was really a liquidity analysis and then making that not in the spreadsheet judgment, which sometimes you have to do. That was as much of a risk unit as anything as the liquidity analysis to make sure how much runway do they have. Do you try typically to boil things down to a simple bet like that so that you understand it in simple terms and you're not creating too much complexity where it doesn't need to exist?

44:26We like complex things, but in terms of the ultimate call, I mean, we do all the fundamental analysis, but ultimately investments come down to three or four or five things. I wouldn't say we simplify the overall investment, but we try to simplify what are the three or four or five things that matter. And we know those things inside out. We also understand, and this is the other thing, investors do. People only think about explicit risks. They don't think about implicit risk. So we always try to put that lens on it. What are the implicit risks that we're assuming away? One of them in the case of Airbnb is we're assuming away that there will be a cure.

44:59We can't all be locked in our houses forever. We were willing to take that risk, but we had to think about that because that was part of the investment. But ultimately, it comes down to three or four or five things. So I'd say, yes, simplify things, but it always comes down to those three to five things. When you think about what success means for the whole firm from a return and risk standpoint, how do you think about it? Is the ultimate comparable for units of risk and return like the S &P 500 or something? Is there an explicit goal? We exist to beat this thing or provide our investors with something more than this?

45:30Our investors have expectations, but ultimately we're an absolute return investor. Sometime if you just take an extreme example, let's say that every single asset class is flooded with liquidity, maybe that's not the right time to invest. And sometimes the best thing you can do as an investor is not invest. But in terms of returns, it really depends on the level of risk units. In 2017, we saw 15 % to 20 % deals, but it was too far out on the risk spectrum. So we said, listen, that's too much risk, even though that return is there. And some people kept doing that. And some of it worked out well until COVID.

46:06But we try to think about the environment that we're in and what things are giving us. Also, our investors have a set of criteria for each fund that we try to meet that expectation as well. I'm very intrigued by the fact that some of the great go anywhere investors gravitate towards sports at some point. Talk about the Real Madrid FC Barcelona transactions, what you're doing, why you're involved in the, what you like about that space. This is a theme coming off of COVID sports and live experiences. So 2020, a lot of the investments in sport teams, you weren't actually able to do as an institution.

46:41Once COVID happened and all these big franchises, revenues went to zero. People weren't going to games. They still had some of their media deals, but it went to zero. So for the first time ever, they started to reach out to institutional partners. Our whole thesis in sports is the biggest global brands in the world. And our whole thesis in sports, and we can talk about live entertainment is that these are historically local brands. And because of technology, you can be on your phone and you can actually watch anywhere in the world. You can be a Dallas Cowboy fan, Australia, watch or Real Madrid fan in China and watch that whole local to global.

47:17That was our thesis. So we literally just started through our relationships calling on the top global sports franchises in the world. Now we've got San Francisco Giants. We're partner with the Dallas Cowboys and New York Yankees. And then two of the biggest brands in the world, FC Barcelona and Real Madrid, we started calling on building relationships. I mean, the deal with Real Madrid was they wanted to do business with us and we wanted to do business with them. And it was, again, a whiteboarding exercise. That structure we did with Real Madrid where we basically formed a joint venture with them, partnered with them on their stadium renovation, which is the Bernabea.

47:54That was the use of funds, but we formed like a company that sort of owned the stadium. assets, when they came to us, they had an idea, we had an idea, and it was literally multiple whiteboard sessions to come up with that structure. And now a number of people have tried to deploy that structure elsewhere. FC Barcelona, again, because of COVID, it impacted their financials. They needed to do something. Joan Laporta, incredible human, as well as Forantino, two people I've become friends with through the Real Madrid and FC Barcelona process. They were trying to pull levers to basically be able to keep their roster together because their view was, if we lose key components of the roster, we won't be able to stay competitive.

48:32And you can see how they've done since then. But that's sort of how those deals came about. The stadium one is an example. There's this interesting push and pull. They know the money they need and for what. They're probably optimizing for giving up the least or finding great partners or whatever. And there's some minimum return that you need to get interested. What is that push and pull process like at the whiteboard? How do you communicate to them? Those are the things that we need? First of all, what are they trying to solve? They say, this is what we're trying to solve. We're investing a bunch of money into the Bernabeu Stadium.

49:03So those are the use of funds. So what structures? They didn't want to do debt. So we had to do effectively an equity joint venture with them. We come up with solutions. We price those solutions. We say, look, here's option A, here's option B, here's option C. They say, we kind of like a combination of option A and option B. We go back to the drawing board. We come back and we say, here's a hybrid of option A and option B, which is what happened on that deal. In those different options, what are the key levers? For every deal, they're different. If it's an equity deal, obviously price. If it's a hybrid deal where it's convertible deal, there's a yield component and a strike component.

49:38If it's just a private credit deal, it's just a yield component. Sometimes when we're doing joint venture, we're like, what are the value added operations? In that case, one of our portfolio companies, Legends, is providing services to them that is helping them uplift their premium offering within the stadium. So we underwrote that and put our money where our mouth was on that. So in each deal, the levers are different. And that's the thing. It's a whiteboard because we've got a toolkit, which we've been using for 25 plus years, but we feel like we can price anything that's not binary stroke of the pin risk.

50:10And then it's got to work for them. Or if it doesn't work for them, we go back to the drawing board and try to construct something that does work for them. But in all these deals, you see where it all takes place is the whiteboard. And it's not what we initially proposed to them or what they initially proposed. It's that partnership with CEOs and management teams. So in this case, there's a stadium that's mapped onto a bigger organization that produces lots of revenue and has lots of streams of revenue, et cetera. Are you always looking through to some underlying holistic whole thing and figuring out how the joint venture that you own equity in benefit?

50:42Because the stadium by itself is just a thing. So the ticket sales or something and the revenue associated with the stadium itself becomes the thing that the joint venture. So in that case, you got premium VIP suites. You have food and beverage, but premium offerings. You have a museum. If you ever go to the Bernabea, there's an incredible museum of all the history. It's the premium tickets. But in all these deals, there's different levers depending on what it is. In this case, it's a perimeter of assets, but it could be the whole company. A firm, Max Levchin's company, we did a$20 billion partnership with them where we formed a joint venture with them so they could originate more assets and have more operating leverage.

51:23So that one, my partner, Michael Dryden, who runs our asset-based finance business, has known Max a long time, gets on a whiteboard, they start mapping it up. It's not like you can pull it off the shelf. Most of our deals, you can't just pull off a shelf. It's right-brained. And that's why when I say one of our core principles that independent thinking, stay away from the group thing, just think differently. What is the process by which you develop the 15 to 20 themes at any given point in time? At any one time, we have 50 to 60 themes bubbling through Sixth Street. Because remember, we have 10 investment platforms.

51:55Sure, they each have a couple. They each have five. So they're constantly bubbling. And then from that, there's really good themes, but they're not actionable. So we narrowed down to 15 to 25 themes. Where those come from, it's from sector knowledge. We have 16 different sector franchises. So each of those sectors is doing primary research about their ecosystems, thinking about not only what does that ecosystem look like today, but what's it going to look like tomorrow? There's research. Some of it's we've got a whole bunch of longstanding relationships with CEOs and management teams. And they'll call, say, hey, we're seeing this in our sector.

52:29We're seeing this in our business or we're seeing this. So, hey, that's interesting. Let's follow it up. Sometimes we're looking at a company and we're looking at, that's an okay business. And then we look at the supplier to that company. Like, wow, the supplier is actually more interesting than the company we're looking at. or we're looking at a company and those customers more issues. And then the last thing is just sometimes all of a sudden you start to see free deals, data centers. Obviously, that's not a good example because we started doing data centers back in 2017 with AirTrunk, which we can talk about because that's a company we started, literally started the white sheet of paper, which is actually just got bought Blackstone for I think$16 billion or something like that.

53:06So we'll get a deal and it comes top down, bottom up. And sometimes we just have a view on something and we'll start doing a bunch of primary research. But a lot of it's through primary research, through relationships, but it comes from everywhere. It's not one place. It's everywhere. And that's the whole point of our firm is that because there's no silos and no fiefdoms, all those things get circulating up. All of a sudden, we see a theme from our power people. We have a team that all they do is power, our data comms people, data communications. And we see a com from our real estate people. And this is what's going on with AI, the constraint of power, putting all those on one umbrella.

53:41I'm like, hey, let's have you guys all work together on this. What are your favorite two or three themes right now? The ones that personally animate you the most? We have 25 themes running through the platform right now. I'll just give you a few of them. Number one is partnering with big companies, big corporates to help advance their business. A firm we talked about thinking about partnering with asset originators and banks to basically help their origination, help their operating leverage. So that's a big thing in our asset-based finance business. Our real estate business, the idea of people getting older.

54:16Wealth tech. So we talked about the wealth space, the percentage of private alternatives and wealth that's going to go up. There's a whole bunch of services and technology around it. So let's say wealth tech is one. Sports and live entertainment we've talked about. We talked about the sports piece, but again, live entertainment, the one thing we learned during COVID is that people like experiences. They value experiences more. As you know, from the younger generations, I know from my kids, they could care less about material things. They just want experiences. That is a big theme for us. And you'll continue to see us do more than that.

54:47Those are some of the bigger ones. Given how big this has all become, assets, number of people, strategies, investments, how do you spend your own time on individual investments versus on people and on teams? Because obviously you love investing. You know the investment by investment level detail, but there's way too much for you to like keep in your head at any one point in time. So what does your week look like? First of all, my partners that run the 10 different investment platform, they're great investors. When we first started the firm and investment committee, I was very vocal, probably 20, 30 % of the conversation, in some cases more than that.

55:24And each year that's gone by, people just keep growing. And again, these are great investors. And I just less and less. And to the point now on investment committee, I have views, but it's very rare where there's some issue or something we're thinking about or some way to create value in a particular company where through the course of all the conversation investment committee, I can just sit there because everything that I would have said or would have asked has already been asked. And a lot of cases asked better than I would have asked. And I'm on the big investment committee. Some of the smaller deals I don't get involved with.

55:58But again, I'm sitting there watching my partners. It's kind of what David Venter used to do, watching a tennis match. And again, not only listening to the partners, but also some of the junior people or mid-level people, because sometimes the best ideas come from them. So some deals I'll get involved with, I'll get involved with one or two deals a year. I deal like Airbnb. I was the front person. I deal like Real Madrid with my partner, Rich Berlotti. The bigger deals all step in and get actively involved. But in general, we have a great team, not only with the partners, but the next generation, the next generation.

56:32In terms of running the business, obviously, I think a lot about our strategic plan and executing the core strategic priorities. So I try to think about big boulders and there's five big boulders generally very related to our strategic plan. I'm maniacally focused on that. I got excessive amount of energy as you might be able to tell. What I try to do is keep the culture. Culture is everything. If I see something not working the way it is or some deal doesn't get passed to another group or some relationship doesn't do that in an unfettered way, it's so counterculture to like hive relationships or not call people back or not help people even though it's a deal not related to your particular sector.

57:12I'm trying to make that very counterculture. If I see people acting with ego or something, I'll pull them aside and I'll be like, that's not how we do it here. And I'm maniacal about that because it's not just culture and abstract, it's how we actually execute our business model and deliver great outcomes for LPs. And then the last thing I try to do is what I call toggle like a hawk. So I got the right people in the right seats, they bought into the culture, they're good investors, they're good managers and leaders. They know what we're doing. They know what we're trying to solve. They're willing to work with other groups.

57:46We have really good reporting. So that's one thing I learned at Goldman. Communication and not fancy reporting. So I always know what's going on. And then obviously I talk to probably 20 or 30 people a day throughout the firm. My average conversation is probably two or three minutes. I literally talk to people all day, all the time, just to feel what's going on. And if there's ever a situation where I need to go 10 ,000 feet deep, I'll go 10 ,000 feet deep, but then I try to go back up so I can just see everything that's going on. If I'm 10 ,000 feet deep every day, I'm not doing my job. And that's kind of how I think about it.

58:19But those are really how I spend my time. But the reality is we have a great set of partners. A lot of the partners, we've worked together for 20 plus years. We have shared values, first principles on doing business the right way. So a lot of those first principles are already in place because we've worked together for so long, we all know what we're doing and we all buy into the mission of what we're trying to do. Keeping the culture the way it is and making those type of behaviors that life is too short, I just try to protect that with everything. All these fascinating stats that are coming out of Paul put out that stat about the percent of companies north of 100 million of revenue that are private is 93 % or something like that.

58:57It just seems like the private markets and let's say the allocation of an average high net worth wealth advisor client or something is 3 % and it's going to 30 % or whatever. Maybe they overshoot and that's the problem. And then they have a liquidity crisis and that's the problem. But I'm just curious for your commentary on, it's amazing to me how few net new pure public equity investors I interview. It's kind of a dying breed. It's kind of ironic when you step back and think about it. You basically have all these public companies. There's less public companies that's going on private. But now you have all these trends of people trying to take ETFs on private companies.

59:35So it's almost like a... It's a snake eating and stale. It's a little bit circular. That's really interesting when you start thinking about ETFs and now there's going to be trading private capital. So all this stuff is a little bit circular, but it's a real dynamic. And I think it's something that anyone that's thinking about investing and thinking about capital allocation needs to take real note of these dynamics because they're real dynamics. And by the way, I think for some of the traditional sovereign wealth funds and pension funds, they've had unfettered access to GPs. And I think they've got more competition coming in from the wealth channel and insurance channel.

1:00:12So it's going to be interesting to see how all that plays out. I think like anything, the very best GPs are a lot better than the average ones. This is the way the same, the best companies are a lot better than the average ones. It's an interesting point that the best LPs will have to compete for the best GPs in the same way the GPs do for companies. It's starting to happen. You're starting to see with some of the larger LPs that are the traditional sovereign wealth funds or pitch fund, they're looking for access because they're worried about access in the future because they see what's happening.

1:00:41They see all this wealth capital coming in. I mean, there's not an earnings call where people aren't talking about the growth through the wealth channel and how much money they're raising the wealth channel, obviously seeing the insurance. So I think access to your best GPs, those conversations are accelerating because again, ultimately everything's a choice of alternatives. And I think that dynamic is the other part of this. In addition to the beautiful people that are over themselves, Spurs idea, are there other outside sources of inspiration that have really fueled your thinking people, mentors, icons like Popovich, anyone else that has cemented the way you view the world that we haven't talked about?

1:01:20When I got to Goldman Sachs, I met Jody on the airplane and I showed up to Goldman Sachs. I didn't know anything about finance. And I remember going to the first analyst session with all these super smart kids from the best schools, all 4.0s and super intimidating. I had something very fortunate and also one of the most impactful things in my professional career happened is that when I first started, there was a bank called Amoresco in Dallas, Texas, and they were failing and they needed to raise liquidity. I got tasked and I literally knew nothing to basically lead the evaluation of buying a portfolio of loans from a group called RTV Ventures.

1:02:04So as part of Amoresco is basically a bunch of loans to radio and TV companies. Back then, this is before direct lending or private credit, because there was a lot of asset value to the radio stations and TV stations, but they had no cash flow, a traditional bank couldn't finance them. So what these guys had done, this is a little pocket in this big bank called Amresco. They basically had gone out and given these companies first lien loans at like 15 % coupons and warrants for 10 to 30 % of the company. You can imagine it's breaking my brain. They called it stick value, but they would take a radio station, a TV station.

1:02:45And these things traded, they were sold all the time of say$200 million and they would lend the first$50 million. So from their perspective, going back to sort of risk units, they were the first 25 % of the value of the company in a first lien loan, which at the time broke my brain. And the guy who ran that was a guy named Steven Plus. Steven Plus, who's now Sixth Street's chief risk officer, he's about 15 years older than me. We ended up buying the portfolio. It's about a$400 million portfolio. And I was basically in charge of the portfolio. And Steven's a slow-talking Texas guy. You meet him and you're like, is he going to get out the sentence or not?

1:03:23But he's one of the smartest guys out there. The fact I got a job at Goldman Sachs is pretty lucky. He basically, for two years, taught me finance, taught me investing, taught me about risk units, taught me everything, taught me about how to go through documents. I look back to it now. He was 15 years older than me. Here's some kid comes down from, even though I was Texan, I was coming down from a New York firm. Now, I still had a little bit of my Southern accent back then, which got beat out of me by all my friends in college. And here's this guy literally answering every week, every day, question after question.

1:03:58I used to have these yellow notepads and I literally would write down my 10 questions for Steven Plus for the day. And I'd literally call him and ask him. That whole process of him teaching me about investing and how to think about risk, how to think about return and just all that, it literally led to what made the start of my career at Goldman, where I started running businesses when I was like 25 years old. Because that whole idea with Steven is from that, I started to say, wait a second, these are really high rates of return. And when I started to actually understand what it was, but couldn't you take other businesses that are good businesses that banks for whatever reason won't lend to because they've got a very specific credit box and still earn a good return, but not that high and then have a much bigger Tam.

1:04:45Could you do that in the middle market? And I technically wrote it, but Stephen helped me write it, wrote a business plan when I was 23 or 24 years old. And that business plan was basically to do middle market direct lending. First of all, direct lending didn't exist. It wasn't a word. And Goldman Sachs had never done anything in the middle market. This is when I first met David Vineyard. But I just said, look, this could be new clients for Goldman. We could go out instead of earning on that portfolio, they were like 30 % returns on first lead. Maybe it's 10 % to 12 % or 13 % or something less than that.

1:05:18But again, doing something outside of credit box, but on good assets or good businesses. And that business at 24 years old, I went to present to Hank Paulson, Lloyd Blankfein, David Vainer, the executive committee. And that was the first time that Goldman ever got in the middle market is through that. By the way, that business, Julian Salisbury, one of my partners, told me it's over$50 billion now. But it all happened because this guy, Stephen Plus, took the time, answered all those questions, would have never happened. And that just taught me about developing people because I saw what happened to me.

1:05:50And that's why we put so much emphasis on developing the younger generation. Age is just a number. Get people that buy in the culture, work hard, that are intellectually curious to ask questions. That really changed everything. But it really taught me a commitment to developing. A couple of my partners, born of Mogbel and Matt Diller, they were associates when they joined Sixth Street on the first day. And I've been working with them every day since. Whenever there's someone who I think at Sixth Street needs development or could be better at reaching the potential, guess who I've had them work with?

1:06:24Steven Plus. Pretty amazing. It's incredible. But that was one of the most selfless acts and it changed my life. My friend Ravi Gupta has my favorite framework for this development concept, which is demanding and supportive, is the orientation he wants to have towards people. How do you think about the framework for developing people and talent? That guy's a smart guy. That podcast he did with him, I thought that was a great one. He's super talented. And for me, it starts with caring. You have to authentically care for that person and you have to authentically care for their development. That's one, two, three.

1:06:58And what I always tell all our leaders all the time is you got to be proactively as part of your day and part of your week and part of your month thinking about how do I develop this person? What are their strengths? What are their weaknesses? How do we do that? And that's why we have this personal business plan that we make everyone do, but it's not only that we have everyone in the firm do it, part of the process is not only having them do it, the other part of the process is having them go to their leaders and really sit down with them to sort of identify that. So for me, it's being intentional, it's being deliberate, but you got to have a plan.

1:07:29You can't do it in an abstract. You got to be very explicit. And the way I think about the personal business plans is every year you have a personal business plan. The format of everyone's personal business plan is the same. The content's different. You have five things or three things on your list you need to improve. You knock down 70 % of them. That's part of your toolkit. You leave the ones that you didn't knock down for the next year. Those go to the next year. And then you add two more. I talk about future self all the time. You go through that process. You do that for 20 years and you're deliberate about it.

1:07:58and you keep notes like you do on the yellow notepad and you're intentional about it, those people, while they're kind of getting to 20, they're going to be optimizing their return on time because there's such a wide toolkit to go through. And by the way, the corollary to that is allows them to spend more quality time with their family and their kids. Oftentimes people try to skip steps and the whole purpose of these personal business plans is the intentionality to really knock them off and be deliberate. You're not on an island, you're in partnership with whoever your leader of that particular investment platform is.

1:08:29And that's how we think about it. We say, look, shoot high, because if you're doing 100 % of your plan of what you're trying to work on, you're probably not aiming high enough, but try to knock down 75 % and keep adding to it. And you'll wake up one day and your future self will thank you because you get to spend more time with your kids and go to all their sports games like I do today. Is the retention crazy high at Sixth Street? We've never lost a partner at Sixth Street. Crazy. I didn't think that's all culture. Maybe after this podcast, we will, but because you got so many listeners, but you could argue, maybe we should have lost some.

1:09:03Maybe there's a criticism there, but there's different forms of compensation. I think sometimes in our industry, everyone thinks about one form of compensation, which is monetary, but there's who you work with compensation. What's your culture like compensation? Are you getting developed compensation? There's opportunity. Do you have white space in front of you compensation? We try to take a more holistic view to that. and we coach that and people like to work there and we don't have, we don't tolerate it. Will that pop up every once in a while where two people get intense and then disagree? That happens as long as it's with respect and dignity.

1:09:38And again, people get intense, but that's not what we're doing because again, our business model is predicated on people working together, not having feathoms and silos. So they all work together, share information, share relationships. That is literally the essence of our business model. That's why we're so focused on it. say more about this concept of future self? I was very fortunate that my parents, we didn't grow up with a lot, but they always spent a lot of time with me. They were always present at all my sports games. They were just always there. So when I started working at Goldman, I had that in my mind.

1:10:13Whenever I had kids, I didn't know when I wanted to be able to be very present with them. My idea was, and it goes back to those yellow piece of paper is that if I I build the biggest toolkit possible. I invest all the time now, prior to when I have kids and a family and a wife, that I will be able to spend maximum time with them. I had a bunch of motivations. I was always thinking about my future self, not from a business perspective or career perspective, but that I could spend more time with my kids. These kids don't exist, by the way. So this is just like a future self. And my idea was it's all about return on time because investing is overwhelming.

1:10:50You could literally spend - You'll never reach the bottom. It never ends. It was like, you could spend all day on half a deal. It never ends. So I need to be able to be the most efficient at return on time. The way I want to be efficient at return on time, know what you like, have the biggest toolkit possible. And I got to build that toolkit as much as possible. That's why I started doing my own personal business plans when I was just starting the business. But it was always with the mindset of my future self so that when I got to that point, I could be a good husband, be a good dad, and be present like my parents were.

1:11:22I always talk about, think about your future self. You got to have fun, but the more time you put in now when you don't have a spouse and kids, you're going to basically set yourself up where you can spend more time. I think some people mortgage the future of it by having too much fun where you could have a little bit less fun and spend more time building your toolkit so you could spend more time with your family when it happened. And that was kind of always a motivation for why I was so focused on those yellow notepads and just that future self and that moment. Again, just to be clear, because I have friends probably listen.

1:11:55I did have fun, but I was also thinking ahead about that future self. If I apply future self to Sixth Street, to the whole thing, and you think five, 10 years hence, something like that, what do you hope it becomes that it is not yet? I want to stay an investor first firm. Other people in the industry want to be deployment factories. There's nothing wrong with that. All good. but that's not what we want Sixth Street to be. That's number one. Number two is culture is everything. To me, there's two tests I'm gonna always run. One test is that we have an offsite every year in Austin, Texas, where the whole firm comes and I go walk around, I meet a bunch of people and I'm like, did I meet any a-holes?

1:12:39Did I meet people that don't ask questions or just talk about themselves? And so far we're undefeated, 16 and 0. But the other test I'm going to run is when I'm an old man and 80 years old, and I come back in the firm, and I sit in a random investment committee or a random meeting, is that still true? And to me, that's the ultimate test. And would I introduce the people then to my family, to my grandkids and my kids? Because that's the ultimate test. We always talk about that when we're interviewing people. First of all, are they over themselves yet? Which again, in our industry, there's a lot of people not over themselves yet.

1:13:13Maybe they'll listen to this and get over themselves. That's a whole other topic. But what do you introduce into a family member? That to me is more important than anything is maintaining that. And wherever that journey takes us, that's where it will take us. But again, for our business, we're an investing business. Those things are what make up us trying to drive what we believe fundamentally, really religiously, because we've been doing it for 25 plus years, great outcomes for our LPs. And if we can do that and ultimately serve your customer, which in our cases are LPs, are people, we do all those things, that's where it will take us.

1:13:49To be clear, we have five-year strategic plans and very specific objectives, but that's what I think about on the horizon. And I've shared that broadly with our entire firm because it's how I think about it. My friend Boyd Vardy has this great phrase, which is, we don't know where we're going, but we know how to get there. Yeah, I like that. I like that. Which sounds a little bit like that. And you got to be able to adapt because think about software engineers. Every mom and dad in Palo Alto three years ago was telling their kids they had to do software engineers and now tell them not to do software.

1:14:17Things can change and you got to be adapting. We're headed into interesting times here. Well, I'm fascinated by what you've built. It's so interesting and fun to hear all about it. It's history and it's unique aspects and where it's led you. It's such a fantastic conversation. When I do these, I end with the same traditional closing question for everyone. What is the kindest thing that anyone's ever done for you? I think I'm gonna have to say the Stephen Plus being 15 years older than me and taking time to answer all my questions. In a lot of firms, I think they would have gone around me and said, what are you doing?

1:14:48And he took the opposite approach. That's the kindest thing anyone's ever done for me and probably the most impactful. I wouldn't be where I am today without him. Thank you so much for your time. Thank you. If you enjoyed this episode, visit joincolossus.com where you'll find every episode of this podcast complete with hand edited transcripts. You can also subscribe to Colossus Review, our quarterly print, digital, and private audio publication featuring in-depth profiles of the founders, investors, and companies that we admire most. Learn more at joincolossus.com slash subscribe.

1:15:33Thank you.