Dave

Welcome to the CrossLead podcast. I’m your host, Dave Silverman at CrossLead, we exist to help teams, individuals achieve and sustain optimum performance. In today’s episode, I have the pleasure of speaking with Peter Chung. Peter is the managing director and chief executive officer of Summit Partners.

When I first met Peter seven years ago, he was already an incredibly successful private equity investor, but was about to become the firm’s first CEO over 30 plus year career. He has been in the Forbes Midas less multiple times, having invested in more than 30 companies, including 18 current or formerly publicly traded companies.

Today we talk about what defines a culture of excellence and teams, leadership traits that differentiate the best from the rest, and what he looks for in leaders that he invests in. We talk about the evolution of private equity investing in the latest trends in business.

Thank you for tuning in. Hope you enjoyed the conversation with my friend and mentor Peter Chung. But Peter, thanks for joining us today, I really appreciate it. I’d love to just to get a chance to get to know you better today. Maybe start take us back to where you’re from and talk a little bit about your upbringing, if you would.

Peter

Yeah, sure. Well, it’s a pleasure to be here and really, really looking forward to this conversation. But I’m the child of immigrants. I guess that’s sort of the first the genesis story of my life. My parents are came here from Korea and in the mid-sixties, like a lot of immigrants at that time, my father came here.

He had just left the Air Force in Korea and he came over to pursue a graduate degree. He was going to go to Carnegie Mellon, but he got off the plane in Chicago and was waiting for my mom to come over.

And so instead of just how he had to what, he had to pay his bills. So he took a job as a draftsman at an engineering firm and in the loop in Chicago and just never left.

Dave

So did he have like a background in an art, in drafting?

Peter

Or he was. He studied engineering in college. He had a he was a pilot and then an engineer in the air in the Korean Air Force. And he he he loved America because at the time, you probably familiar with the state, but they had officer exchange programs. And so, you know, he knows every Air Force base in America because he has been to most of them anyway. So he came he came to the U.S. to study to get his PHD in engineering instead of going to Carnegie Mellon. He decided to study at the University of Illinois and and I was born and raised in Chicago.

In the Chicago area, grew up in a town called Hinsdale, which is which was a wonderful place to grow up in the seventies and eighties. Because of my father’s history, and my grandfather was also a pilot. I was fascinated with aviation.

You know, again, I was a little kid. I’d had a dream of going to the Air Force Academy and becoming a fighter pilot.

Dave

Oh, wow.

Peter

And that was that. It was like layers in life, you know, not necessarily stages, but that was like this foundational layer. And I still have a lot of that in my makeup. You know, I still love aviation. I have deep reverence for the military, not uncommon among children of parents who were, you know, my parents were refugees during the Korean War. So it was sort of a reverence for MacArthur and the Marine Corps. And you know what, the 50,000 young American boys who who were killed or wounded in Korea?

Dave

Yeah, I don’t think I appreciated that until I spent time over in Asia as a young officer in the Navy, and you and you go over there, you would just see the appreciation that people had for, you know, what the U.S. had done all the way from Australia up to, you know, Japan. I mean, it was it was pretty remarkable. And like you, my my father was a pilot, so I know what it’s like to want to be a pilot growing up. And so I found out my eyesight wasn’t that great and then there was like, All right, well, I guess you figured out the alternative.

Peter

Well, he’s almost exactly the same thing happened to me. I think is, you know this, Dave. But you know, I guess if you’re thinking about the next layer of life like you, it was it was as a student athlete that began probably in middle school, you know, growing up in a town like Hinsdale, where sports are really important, get pulled into sports at an early age and did the Midwestern sports. I played football. I was a wrestler. I played baseball. Over time, I probably midway through high school, dropped baseball and stuck with football and wrestling. But, you know, I just had the opportunity to compete with guys who remained to this day, some of my best friends. You know, I still I really wanted to be a college athlete, but I was still had this dream of going to the Air Force Academy and flying an F16 and that that ended suddenly. I think in like January of my senior year when I didn’t get a vision waiver. I got an appointment getting recruited to play football, but didn’t didn’t get the vision waiver. So wow, that kind of ended suddenly. But you know, when one door closes, another opens oftentimes that. Tough to tell that to a 16 or 17 year old boy who’s been dreaming of this for, you know, on the doorstep of his childhood dream, but the door that opened don’t mean this kind of a funny way to say this as sort of a fallback consolation prize was Harvard. Yes.

Very fortunate to have the chance to go to Harvard and play football, and that was a terrific experience. You know, it was a humbling experience and it was a transitional one because I wasn’t as as I wasn’t as good as I thought. I was put it that way when it’s when I went there and.

Dave

What position were you playing in?

Peter

Football was running back.

Dave

But, you know, back.

Peter

Then you played both ways as a running back and a defensive back in high school and. But I like I loved carrying football and went off to Harvard and was was probably in over my head in terms of talent.

Even back then in the eighties, but that kind of it, it was a period of tremendous personal growth and I’m in so many different ways. There’s sort of this story of a boy becoming a man and that that’s that doesn’t come easily or smoothly.

And the same was true for me during my college days. But that that I guess the student athlete, the at least the active participant, the competitive athlete part of it started to change and kind of came to an end.

After my senior year, I actually went on a athletes in action wrestling tour of Central America. For some reason, they just they I don’t know why, but they took me on this team because I was a decent high school wrestler.

But these guys were really good wrestlers. So we were.

Dave

You wrestling at Harvard as well?

Peter

Now, now you know, it’s wrestling. It’s kind of like water polo. It’s a pretty miserable sport.

Dave

Oh, it’s for a slight weight.

Peter

Yeah, a lot of life lessons, a lot of life lessons. But you know, I fractured my collarbone before my senior season, so I didn’t miss my whole senior season and sort of felt unfulfilled. So I did this. Athletes in action tour as a way to close the book on that sort, a competitive part of my student athlete

layer of my life. Now that continues out, you know, it kind of manifested itself in different ways. Can’t play football or wrestle when you get in your thirties and forties. So, you know, I took up mountaineering and rock and ice climbing and surfing and a big fly fisherman.

Do you know I like to hunt with you and and all your buddies? And then I saw pass it on to coaching my three boys in a variety of sports.

Dave

Yeah, you’re very active, right? As a coach in the in your local community?

Peter

I was. Yeah.

Dave

Yeah, yeah. Awesome. Yeah. You know, I find it going from a student athlete. That’s sort of all, you know, you know, all the way through college in your whole life sort of revolves around that. When you when you finally made that, maybe talk a bit more about that transition. You know, when you start to realize, right, what’s the next phase of my life going to look like, you know, I’ve got a friend who actually coaches former Olympians and she’s, you know, these people, these people deal with depression. Their entire life was focused on ten, 15, 20 seconds worth of glory. And then they come home and they’re like, All right. Well, now what?

Peter

Yeah, you know, it’s your identity is wrapped around whatever it is, you’re doing, right? So if you’re a good athlete, you’re you see yourself as an athlete. And I think I was probably a little bit more well-rounded. I was obviously a fairly good student and had other interests and hobbies. But I would say by and large, my identity was as a student athlete. And when that comes to an end, it’s you have to almost redefine yourself and that that can be a challenge at any stage in life. But for me, frankly, I was let down slowly, as I said, I wasn’t that great an athlete in college, and so that let me begin a relatively gradual transition into becoming the next thing. And for me, that was becoming a finance professional.

You know, I didn’t know anything about Wall Street or investing or the financial world when I went to college. My father was an entrepreneur. Would he had started a steel fabrication business and built pressure vessels and storage tanks, sort of his the practical application of his engineering education. But you know, when I was a junior and senior in college, but at the time this was late eighties, all the smart guys that I knew were going down to Wall Street.

Peter

So I thought, Well, you know, sounds like a pretty interesting thing to do.

Dave

What did you study? What did you study at Harvard was or was your major on economics? OK, so that’s a nice that’s a nice Segway into financing.

Peter

Yeah, yeah. So I went went to work at Goldman Sachs in New York in what was then the merger department, the M&A Advisory Group. I just picked that firm in that group because I like the people the best. There wasn’t any scientific reason for doing it other than I really like. The people thought they were terrific. What I didn’t realize that I hated in New York, so moved to New York, had a great first few months. You know, for the first time in your life, you have money in your pocket, but you’re you’re working, you know, are just brutal hours.

Dave

Yeah, the investment banking world is known for that, right? It’s like almost like a crucible for, yeah, college graduates.

Peter

Yeah, some recent blowback, which I find amusing back then.

Dave

Yes, the softer generation these days.

Peter

Yeah, they’re less sympathetic to the plight of the young analysts, but the extraordinary learning experience. But again, I didn’t like New York, so I was looking to make a change. I volunteered to transfer to the Los Angeles office, which was again a pivotal and transformational decision in the arc of my career. I spent two years in L.A. working primarily with a partner named Gene Sykes, who is still a very active partner at Goldman Sachs, from whom I learned a tremendous amount about how to think about businesses, how to conduct yourself in a meeting, how to negotiate, how to value businesses really, really important.

Dave

Can you maybe share some of those key like takeaways or key lessons from that you learned?

Peter

one of the biggest lessons I learned from Gene was to be don’t shortcut your preparation for meetings, especially when you’re young. I was 22 or 23 years old. We were advising boards and executive teams of publicly traded companies on the biggest decision they could ever make, right, which was potentially to sell their company. And it I learned early that it didn’t necessarily matter how old you were. It mattered a lot. How well prepared, how thoughtful, how articulate, how intelligent you were. Just matter how good you were. And I thought that that was different than my impression of what work was like. And I think some of that I attribute to Gene, he just put me in positions where, you know, sort of sent me to meetings alone and figure it out, you know, and I just learned a tremendous amount from him in terms of that way of thinking about rendering advice, giving your opinion, thinking about strategy and then communicating all that in a compelling way.

Dave

Yeah, great. Great. And if you if you go back for a second and Peter to like you know, your childhood and even college, is there a key takeaway or lesson from you about being a part of teams that you know you still sort of carry on today or think about or try to instill in your into your into your boys?

Peter

You know, Dave, there’s perhaps a common denominator under a lot of very, very successful organizations is that that is that they have a culture of excellence in their organizations, comprised of people who have very high standards. They have tremendously high expectations of themselves, and that translates into a group of people who can perform.

In a relatively selfless way and produced extraordinary results over a long period of time, I think the, you know, the the opposite what I’ve seen in many places is the opposite of a culture of excellence is a culture of entitlement and that can be very difficult to reverse.

It also leads to hierarchy, bureaucracy, all the things that you point at and say that that’s the root cause of inefficiency or poor performance in an organization. So, you know, it’s it’s easy to sit to to to talk about in a relatively small organization like our firm.

I can understand how it’s difficult in a much, much larger organization, global organization. But it’s one of the things that we look for when we hire people. You know, if they have very high expectations of themselves higher than I might have of them, that’s probably going to work out pretty well.

But if my expectations for somebody are low are higher than their expectations of themselves, it’s just a matter of time before it does work.

Dave

Now I’m looking forward to the day that that flips over for my children where I have higher. They have higher expectations themselves than I do of them. We’re not. We’re not quite there yet at seven and ten, but we’re working on it.

Peter

Yeah. Well, it’s another one of, you know, I’m currently in the 20 years into it now, husband and father stage. But you know, I think I’ve got to be careful about applying those professional lessons to my personal life.

Dave

Yeah, yeah. Yeah, exactly. Got to figure out that balance. Yeah, no, I’ve been I’ve been pretty reflective myself around my time as an athlete, mainly because my coach, my my high school coach just passed away sort of suddenly a couple of weeks ago. And a lot of us have been we’re sort of taken aback and surprised, and I was sort of surprised it. So the outpouring of emotion and and the reconnection you had with old teammates and even people that were familiar with the program over years, just because the guy was, you know, pretty legendary coach.

Dave

But I look back and say, you know, there’s a lot of lessons there that really helped me navigate through it. You know, I would say adversity, a life that really I can tie back to that pulled back in high school where, yeah, you know, to your point, he sets a very high standard. And the other thing I liked about it was it was a meritocracy to one extent, and he didn’t care who you are, didn’t care, you know, if your parents had means or not, or you know what, your background, if you showed up and and you put out every day, you could be on the team, and if you didn’t, you know you were gone.

Peter

Yeah, if I think there’s something about this in our in our nature right there, obviously in sports, there’s all the tried and true learnings that that apply to participating in team sport. You learn the value of hard work, you learn how to handle adversity, you learn how to handle success and failure so and so forth.

But you know, it’s funny they talk about millennials now want having a lot of motivations, one of which is to be a part of something bigger than themselves, part of a cause. All that stuff. Well, that was no different than playing on a team is right in your right for you and I, when you know, 20 or And yeah, I don’t I don’t. I think what we’re talking about today with millennials and Gen Z and Gen Z is not that much different. You know? Yeah. Manifests itself, perhaps in a different way.

Dave

All right. So take me back to L.A. You’re in L.A., you’re learning from this legendary partner at Goldman Sachs. You learning as you’re being thrown into meetings at a very young age where you’re advising, you know, probably pretty senior executives on their most important decisions around whether to sell their business or not.

And then what’s next? Where do you where do you go? How long you in L.A. and where do you go next to Stanford next?

Peter

Yeah, it was, you know, again, I love New York, but to be clear, I didn’t want to live there. So I been offered the chance to skip business school and continue on career track at Goldman. But it required a move back to New York.

And so, you know, I was 24 years old at the time living in Manhattan Beach, and I just couldn’t bring myself to to do that. I really did enjoy California, so almost I applied to business school and decided to go to Stanford there again.

Somewhat of a I would have never predicted that I would go to Stanford Business School when I graduated from college. Why? Well, you know, I’d grown up in the Midwest and had been educated on the East Coast and lived in New York at a very eastern half of the U.S. centric point of view.

But moving and moving around and beach and then, you know, doing business in Northern California, Silicon Valley, I really like the area like people. I like the innovation, the energy. And so I decided to go to the GSB.

And again, just an extraordinary piece of good fortune, not just to be in the class in which I’m from which I graduated. Just a terrific group of people with whom I’m very close today, but also had the opportunity to study investing under the legendary Jack McDonnell.

Jack taught investing in Stanford Business School for five. Years, undoubtedly, the best teacher I ever had. But more importantly, because he’d been such a legendary figure already by the time I became one of his students. You know, he he had this larger than life aura, although he was an extraordinarily humble and low key, thoughtful person.

He would pick two or three students to work for him as case writers every year, and for some reason he decided he picked me. And as I sort of progressed through that second year business school, I realized that, gosh, you know, if Jack picked me as one of his case writers, you must think I could be a

pretty good investor. And that that started my exploration of a career in investing. And you know, that’s that was again, one of the more influential experiences. Clearly, the most, the most impactful person in my thinking about my, my not just my career, but also my life and and how to conduct yourself in a personal professional situation.

Just an extraordinary person. In so many ways that would have happened if if I hadn’t decided to go to Stanford Business School.

Dave

This low key comment keeps coming back. I mean, maybe, maybe talk a little about it because I know you’re a student of it now, like leadership. Like, you know, what are your takeaways that sort of differentiates leaders in the environment?

I know, I know you’re you sort of referenced in previous conversations. We’ve had Jim Collins and some of the work he had done. I’d love to hear more on some of your thoughts. Well.

Peter

Again, I’ll confess that oftentimes, you know, you tend to gravitate to theories which probably reinforce your own point of view or reinforce your own strengths and weaknesses, right?

Dave

Sure, of course.

Peter

But well, there’s a perhaps somewhat of a difference between being an entrepreneur and being a leader. Many of the best entrepreneurs again, I’m saying this from the perspective of someone who lives in Silicon Valley and well known for having a certain entrepreneurial culture.

But a lot of entrepreneurs became entrepreneurs as a response to some trauma or some difficulty in their in their earlier lives. I think.

Dave

That’s interesting. Is that true? I didn’t realize that, well.

Peter

It’s the Steve Jobs phenomenon. You know, we we see this all. And I heard a saying that about about bad fathers in Silicon Valley said, thank goodness for bad fathers because without them, there wouldn’t be so many entrepreneurs.

Dave

Oh wow.

Peter

I think that’s a little extreme, but there is a common thread in many entrepreneurs that they become somewhat nonconformist because because of some past history. That’s that’s again, a gross stereotype. But there is there is some commonality among that personality type.

They tend not to do well in big companies that want to do something different, unique. They see the world differently, and that can create an extraordinary vision, a different differentiated vision on opportunities. Again, many of those entrepreneurs that can be great leaders, but not necessarily because of again, what makes them a great entrepreneur doesn’t necessarily make them

a great leader of a company. There are always exceptions to that rule, but that’s not an uncommon pattern to see here. I think when you talk to leaders again, leaders who can sustain great performance over some period of time, there is also another, you know, simple aphorism that a people hire other people and B people hire C  people.

So what’s a great characteristic of a leader? They can attract outstanding people to come work with them, not for them, but with them. They want to be a part of again going back to this concept of teams. They want to be a part of an extraordinary organization that does great things.

I think one of the commonalities of some of these great leaders who can attract extraordinary people is they’re relatively selfless right there. They’re driven by what’s best for the team, what’s best for the company and not neces. Of course, everybody to some extent, they’re capitalists right there.

They’re motivated by, you know, they embrace the profit motive, but it’s more than that. And it’s not at the expense of a of of the success of their teams.

Dave

Yeah, yeah. And that’s the definitely reconciles with some of my thoughts, for sure and some of my own experiences. And it’s interesting you say you say that about entrepreneurs because you’re right. You know, I think I grew up my high school years in the Bay Area, and you would see a lot of these companies and you look at the leaders, you know, like, why not? I don’t know why those are people are considering what to follow, but they do have a compelling idea or product. You know, they’re going. But there’s now, but at some point that has to transition.

I mean, as organization gets some degree of scale and, you know, leadership management starts to take a more critical role and that the the sustainability success in it and at summit, you guys tend to invest a little later stage when you’re not dealing, you know, typically with like brand new start ups or you’re doing something has a

Dave

little journey.

Peter

We are growth equity investors, but much of what we’ve done for almost 40 years is invest in companies that are still owned by the founder, CEO and founder.

Dave

Of.

Peter

The farm family or a close group of non-institutional shareholders.

Dave

OK. And out the time those event was that it was like roughly the percentage of the time that the founders had to stay on and and keep kind of driving the business versus, you know, they’re looking at this is their opportunity to sort of make a material change in their in their career progression.

Peter

You know, Dave we’ve looked at our data recently on on realizations over the last six or seven years and what we’ve discovered is that about 70% of the time we back the same CEO leader from start to finish of our whole of our investment during our holding period.

Dave

Out, it’s impressive.

Peter

And when we do, our realized results are significantly better than when we don’t. If we have a CEO, if we have a CEO change for any reason, it tends to extend your holding period because that new CEO typically rebuilds the team. And there’s a new CEO, oftentimes because there was a performance issue, right? So that it takes time to rebuild the executive team. They will, on occasion, reset strategy or just strategy.

Dave

And make sense.

Peter

Of that. That extends your holding period, which has an impact on IRR.

Dave

So my imagine then when you’re when you’re going through the process of trying to determine whether you want to invest in one of these companies, you must spend a lot of time on the diligence of the actual leader themselves. Considering that the stats you just you just articulated.

Peter

That’s become one of our primary emphases in recent years is to really go deep on the human capital underwriting component of this. It’s a that that is significantly more art and science.

Dave

Right? Right.

Peter

But part of it is, again, to sort of go back to Polonius, speaking to Laertes, to that on be self, be true. Just be objective, be intellectually honest. Don’t hear what you want to hear. And that’s a challenge, right? That’s difficult. That’s it’s not easy in human nature, but really step back and try to be as objective as possible about what you see and hear about the person you’re about to back.

Dave

Shakespeare so relevant 500 years later. Very impressive. So you graduate Stanford, you moved to summit. Maybe take take us through the arc of your career as an investor. You know, what was it like in the early stages and how has that evolved over the years?

Peter

Yeah. When I joined some in 1994, the investing business, private equity and venture capital or growth equity, as we call it today in our part of the market was a fraction, a tiny fraction of the size it is today, and the firms were by and large, artisanal in nature.

It was a bit of an apprenticeship business. They were partnerships, true partnerships, and it was now again, it was more of a craft as opposed to an industry. That’s all changed today, the industry. But the business has become much more industrialized and and institutionalized.

And I think generally that’s been a positive evolution with all of the capital in the growth in the industry. The businesses that had to mature and that’s that’s been the case both at our firm as well as across the industry.

But we were, I think, around 800 million of assets under management. Today, we’re almost 30 billion and we had probably grown from four fold five fold in that period of time.

Dave

Now in your entire time you’ve been you, you’ve always you’ve always lived in the Bay Area and have you been focused predominately in the technology space? Is that was the discipline that you followed up?

Peter

And yep. And again, sort of talking about layers of your life that built on top of each other, you know, going all the way back to my my origin story. You know, this latest layers as a tech investor at some and I still am responsible for subject matter expertise and thought leadership in a subset of of the technology sector in which I’ve been investing for most of my career. But over time, I’ve added additional responsibilities. I was a member of our executive committee for nine years and that was a group of partners that ran the firm.

And then even though I was never really a proponent of moving to the CEO model 2014, my my partners asked me to become a CEO. And that became my role beginning in January first, 2015.

Dave

Talk about that. That’s interesting. So you’re in a partnership model. What was the impetus to change, to transition to having a CEO?

Peter

You know, I think we’re going to first observation I always make is that being the CEO of partnership is very different than being CEO of a company. You’re still a partner, right? I’m I’m a managing director of the firm and although I’m invested with certain additional responsibilities and authority, but I’m still a partner.

And so that requires, to some extent building some consensus. And again, I think to some extent, everybody has a boss, right? I think that’s one of my … Another leadership lesson I would add it’s good to have a boss. It’s good to be accountable to somebody. So I’m accountable to everybody at the firm. I view my role as not just being a leader, but also working for everybody in the firm. And of course, we all work for our investors, our limited partners, are the group of people to whom we are ultimately accountable.

But I think that’s the first observation I’d make, Dave. But the impetus to move to a partnership, to move to a CEO model, I think, was fairly straightforward. Any multi-person decision making apparatus is inefficient by definition, right? It can sometimes lead to the right outcomes.

But our I think our our experience was that the cost in terms of inefficiency outweighed the benefit in terms of consensus building. So we took the decision to consolidate the leadership group of the firm to have a single voice speaking for strategy and sort of establish the lexicon of the firm and all the norms and processes and all the things that are necessary to run a business, but to do so in a more efficient way, right, as opposed to four or five or up to seven people making that decision, it’s now one or two.

Dave

Got it. Makes sense. Makes a lot of sense. If we go back to, you know, kind of what you look for in a leader and you said it’s more art and science. I’d be curious, what is your what is like your internal sort of pattern recognitions and process you go to to sort of like suss out whether a leader is somebody that you think is somebody want to partner with versus not.

Peter

I think the first thing, Dave, is to really understand their motivation, what’s causing them to engage in a conversation, what would allow them to build the company? How will they respond to challenges? How will they respond adversity? Right? And I think to some extent, it goes back to their willingness to really build teams and and and attract and empower outstanding people. Some leaders are uncomfortable with that delegating authority. I think in order to build companies again talked about being CEO of a company.

That’s that’s necessary. It’s a it’s a risk management consideration for investors as well. Key man risk has been a risk that you know that we’ve considered deeply over my time at the firm. And it remains something that we consider in every in every investment. one way to control invest in key man risk is to key person risk is to broaden the group of key people again to to have a larger group of people on whom we were depending as opposed to just one key person.

Dave

Sure. Yeah.

Peter

That’s that’s that’s one thing. I think the other thing Davis, you know, having having a vision and a passion for what they’re doing. And so again, over time, if you’re successful, everybody is motivated by money at some level. But over time, the motivational effect of additional wealth reaches a point of diminishing returns. So in order to keep going at that at that stage of one’s career, you have to be motivated by something different. And it’s one of the things that we look for when we hire people. We’re looking for people who want to be the best. They want to be the absolute best of what they do and they want to play on the best team. And if we can, if we can continue to do those things that you know, you saw for a lot of your problems.

But that’s that’s another marker of long term success in great leaders vision, passion, motivation, all those things are really important. And then, you know, I think CEOs also have to be very good salesmen. That doesn’t mean they have to be the the pitch person or the the used car salesman or what have you.

But they’ve got to be able to to tell the story of their company in a very, very compelling way that gets in. That message has to be compelling both internally and externally. You have to be able to convince the people inside your company that what you’re doing is really important is going to be great.

And likewise, you have to convince your customers and or your partners or whomever that your entity, your organization is uniquely capable of creating value for and for everyone in the in the in the partnership.

Dave

Yeah, I love that. I love that idea. You know, if you can inspire people, it’s amazing. You know, the additional gears you can get out of that and then how they can really make the team. Be productive as a reminder, this recently, this weekend, I was with a company who was just starting up and we were running sort of a strategy session for them. They were talking about their mission, which honestly, this isn’t a joke was like to cure cancer. And you’re like, Well, that’s compelling. And then they started talking about their approach to it.

And you know, you wanted it. You want to take the helm at the end of the document. You’re like, All right, I’m in like, I don’t even know we’re doing, but I’m doing it. Yes, it is really compelling, and it was fun to be just in a room of really smart people all sort of like, you know, didn’t need to be there that were sort of aligning around this common goal. I mean, you had like molecular biologist from from Harvard who, you know, basically won the equivalent Nobel Peace Prize of like 16 names in there go, Wow, I’m really out of my league here, in this room.

But now it was it was really, really compelling. As you think about how things have evolved, especially, you know, we just, you know, oftentimes when I when I’ve dealt with people in finance, they don’t they tend to like look at like events to be like these things that sort of drive, you know, dislocation or opportunity in the marketplace. And obviously, we’ve just been through a pretty, pretty significant event with, you know with COVID and the effects. I’d love to hear how you’re seeing the current trends and what are you seeing as far as what’s next?

Peter

You know, Dave, we’ve been I’ve been using this analogy again. I just tend to borrow liberally from great teachers from my past. But when I was in college, I took a class taught by the famous scientist, Stephen Jay Gould.

He taught one of his famous theories was punctuated equilibrium. It was his own theory of evolution which said, Hey, listen, instead of the gradualist, the traditional view of Darwinian evolution. What I see in the fossil record is that we see periods of very, very rapid evolution in species in response to sudden environmental change.

So things are very, very, very stable for a long time. Then you have a big environmental change and you see rapid evolution in species. The natural selection process occurs in a compressed timeframe, and what comes out as the environment settles down looks very different than it than the world when it entered.

And I think that’s a useful analogy to think about what’s going, what’s going on, right? So again, we we’re seeing a lot of that in some of the industries in which we invest. And I think COVID has served to accelerate a lot of the secular trends that were emerging before the pandemic, and those trends could have been upwards or downwards. Right. So in some cases, it’s accelerating the sunsetting or demise of certain secular themes, and it’s accelerating the emergence of others. And those are the things that we spent a lot of time last year really trying to understand.

We had lots of conversations about what’s the shape of the curve? How much of this is just pulling forward demand, which will then go through some period or mean reversion in the sinusoidal pattern around the long term trend?

And how much of this is a pulling forward and then continued acceleration from that point forward?

Dave

And what is your analysis? Leave you on that? I’m curious, what are those trends that you think are going to revert back to the mean? And what do you think those things that are established a new sort of plateau owner can occur?

Peter

Yeah, I think I think, you know, you can you can. The answer to that is just in a simple examination of your own behavior over the course of the last year. Are you consuming as much streaming video or are you ordering as much delivery?

Are you writing your Peloton as much as or going to the gym? I mean, all those things that that were were moments in time where we really change behavior. We’re forced to change behavior in a very sudden sudden manner or how much of those changes in your personal behavior are continuing on now that you’re vaccinated and traveling again and going back to work? Right. Those are just some simple analogies that I use. I, you know, I’m I. The answer to all of those questions in my own personal observation is that I’m doing less of all those things than I did in June of 2020. Because, you know, we’re we are in some ways going back to work and getting back to normal.

Dave

And you talk. This is interesting because I’ve been sort of trying to figure this out like just my own self of travel. And you know, you know, probably like you, I spent most of my life on the road, whether I was in the military, I was just deployed or, you know, and then back home, even when we’re home, we were training really with very little training actually in San Diego is usually some other facilities around around the country. And then when I got out and, you know, started working, I’m in, I’m naturally in the services business. And so I was always sort of out trying to service clients somewhere. But, you know, the last year and a half, you’ve been home a lot and that’s different. But the thing I like about it is I like the extra time with my children, like, I sort of, you know, I think I think my son is going to look at this period of his life because he was, you know, seven, eight years old and say, Wow, your mom and dad are around a lot. And that was cool. Like, he loved the fact that he had to go to school.

It’s like, this is great. Now, I don’t think he learned anything in a year and a half, but but it was great. And so I’m sort of. I know I’m going to start traveling again, to your point more about.

I am trying to recalibrate how much and like, you know, are there things that I can do virtual that you know, there are ROI from just a time standpoint, you know, make sense and then one of those things that are really impactful.

I mean, how are you thinking about that just because I know you have lots of different? Constituencies that you’ve got to keep happy, you know, between LP’s and probably team that you work with and probably the companies that you partner with.

Peter

Yeah, there’s a I think there’s a tradeoff, perhaps or at least a consideration between efficiency and and competitive excellence. I had this conversation with a friend of mine who runs tech investment banking at a major Wall Street firm, said, Listen, the conversation he’s having with his senior colleagues is that they’ve just had a record year in terms

of fee generation and transaction volume. While most of their senior guys are sitting in their Hamptons homes now, he’s asking them to commute back to Midtown Manhattan and get on airplanes and basic, right? Well, while that the statement may indeed be true that they’ve never been more productive than they were sitting in the Hamptons, if their competitors are going to see clients in person, they will eventually lose that that productivity right the world will force them to. That’s a great point. Back to some semblance of normal. Now that’s not to say that there is not there aren’t opportunities for efficiency, but for us.

I think like many organizations, the relationships you build, which are the foundation of trust and confidence and all the things that are necessary for well-functioning teams, those things can’t really be built purely virtually. Eventually, you have to spend money together.

Dave

And I couldn’t agree more. Yeah. How have you thought about that with your own team? You know, bringing them back together, you know? You know, now that, you know, conditions have sort of materially improved how you think about reinvesting a culture?

Peter

Yeah, we had hours of conversation about this, but we eventually just said and we said this in April, actually that on August second, we’ll all be back in the office. And again, it was it was a consistent statement that we cannot and will not be a virtual firm. In my view. That’s not, at least for us, that’s not the it the way to run our business in large part because, you know, if you go back to what our culture and our values are, one of our guiding principles is teamwork, and I think teamwork is difficult to to optimize when you’re just interacting with each other in 2D. You know, and I see you on a flat screen, that’s one thing. But sure, I can spend a lot of time with you in this format. But you know, when you and I go hunting every year, our our relationship gets deeper, right? And that’s just that’s for sure. It’s a simple analogy, and it’s since we’ve made that announcement, I think there’s quite a bit of enthusiasm for going back the office. I think people are ready to interact with each other. We’ve onboarded sort of like 50 people virtually. And I’m very interested in just meeting all of them in person. Right.

Dave

So have you got any pushback from that from some of the employees?

Peter

Yeah, I think some people enjoy the flexibility, I think. Listen, I lived in San Francisco for seven years and drove to Palo Alto, so I understand that then this was before cell phones and Teslas, but I understand the personal cost of time to commute. But the office was never in San Francisco, was always in Menlo Park when we hired folks or was always in the back bay in Boston or in Mayfair in London, so the office hasn’t moved. So we again, we think that the benefit, the long term benefit in terms of mentorship, development, trust, relationships, culture, all those things really outweigh, I think, the friction of of making the commute. And yeah, the same is true for me. I drive to the office and it’s not always, not always easy or fun, but I think some of that will be all of it will be outweighed by the benefit of being together in person.

Dave

So going back to your own self-reflection, Peter, is you look at those those maybe those habits or those those that you think will be enduring coming out of this, like, you know, like you said, you’re not running as much, Peloton, you’re not as home as you were as much before, but not worrying as much take.

What are some? What are some new patterns or new muscles that you’ve built that you think you’re going to be leveraging now, you know, coming out of this pandemic?

Peter

You know, those really good question, Dave, I think the friction of having meetings is has just gone down so much in a virtual setting, you know, you can have 15 meetings in a in a twelve hour day if you want. Right. I think we’ve all learned to to increase the the pace at which we can work now. I think that’s to some extent sustainable. We trained our brains to process information very, very quickly to digest it and consume it and actually to produce it in formats that are more than have by necessity have become more efficient. You can you can’t work 25 hours in a day. So, you know, if you if there’s a natural time constraint on how much you can work, your your work product will. But by definition, has become more efficiently produced.

So I think there’s been some added benefit in that context. I think we’ve learned to make decisions more efficiently and more deliberately. Right. There will be pattern recognition. It’s not just pattern recognition, because that can get a little dangerous if you rely too much on pattern recognition.

But I think it as an organization, we’ve learned to filter all the information you receive and distill it into four or five or six key threads which allow us to make a decision. And I think our internal processes to drive that decision making have improved because of the pace and the frequency that’s been forced by a virtual work environment.

Dave

Yeah, it sounds like you’re describing like the equivalent of like a baseball player just getting more reps, write more pitches, you see that you’re seeing more. And so you know your ability to sort of, you know, consistently hit at a higher levels, you know, improve that.

Yeah, that makes a lot of sense to me. That makes sense. I had this belief, sort of. I’m not nearly as eloquent as you in talking about your professor at Stanford, but I have a similar thesis that you know, you go through these moments of dislocation and you build new muscle and you know, or add new tools to your toolkit. And then, you know, there’ll be there’ll be that you’ll be able to apply those kind of going forward consistently and will make you sort of reimagine how you can solve problems. And you know, if you’re committed to continuous improvement and how you do your point like constantly perform at a high level, you have some additional tools now that you can leverage. And so I’m trying to figure out ascertain what those are exactly. But certainly, as I’ve talked to other leaders, but even especially in finance, they what they like about the… To your point, they can do 20 meetings in a day, and that’s something that would’ve been really hard to do when they weren’t spending a lot of time on a plane or whatever else. And so they’re like, Look, that that’s great. But you’re right. You know, to the extent that you know, relationships, is the fund foundational part of your business, you can’t really develop those virtually.

You just can’t. And especially if you’re if your competition is doing an in-person right. So that’s going to yeah, it’s going to require you make it, you know, a reinvestment in that that makes a ton of sense. Well, awesome. So maybe as we start to wrap up here, Peter, maybe talk a little bit about, you know, some books or or some things that you’re you’re personally doing to, you know, getting your own development as a leader. Like, what are those things that you invest time in or make time for?

Peter

Well, I think again, it’s there’s a sort of a is like to try to keep things simple because there’s just less to remember. But all the things that I say to our people, I apply to myself. So how am I improving continuously and am I? Am I better today than I was yesterday or a year ago? Am I innovating? Am I? Am I introducing new ideas without, you know, going off, you know, 50 million directions? Am I finding ways to do certain things differently or better and more efficiently?

Or am I spurring the organization to think about our business in a in a different way while remaining? It’s it’s, you know, of course, that innovation is an important thing in everything we do. It’s kind of sounds funny to talk about innovation in a in a private equity firm, but it’s incredibly important, and I think having an innovation mindset is really the the key to this thinking. How do we think constantly about doing things differently or better? And then finally, a culture of excellence, am I upholding that standard? You know, my pushing myself to be better? Am I encouraging everyone to achieve to their potential? And are we recognizing opportunities to help people improve if they’re not doing that? And, you know, I think the other thing this is specific to our business, but it’s always just it’s just really important to remember that you can’t, as the saying goes, you can’t confuse a bull market for brains. Right. We’ve had a tailwind. There has been a tailwind in the investing business and that’s been in place since 2008 or nine, right since the GFC. It’s the longest, broadest, deepest asset bubble in the history of organized commerce, and it’s very different than the tech bubble. Very different than other periods of time. I think I, you know, given up trying to predict when, when and how it will, it will change. But. I think it’s one of the things I worry about is there are a lot of people in the business, including in our own firm, who’ve never really lived through a period of time, like the GFC where nothing is working right, where everything you even great decisions make you look like an idiot. Right? Because of exigent circumstances, we will probably see that environment at some point in the in in the future. Well, there will be a correction at some point, but, you know, hasn’t been one for a very long time. And the investing business is not this easy. It’s just not, right to produce the kinds of returns that that a lot of investors have produced. I think we have to appreciate that there’s a tremendous amount of macro tailwind behind that, those that performance. Yes, people have made great decisions. Yes, there are a lot of really, really smart people. But eventually we in the industry will be tested when there’s another seismic shock to the system.

Dave

How do you get that message across to some of those newer investment professionals at your firm, you know, who have never really seen a cycle because this is a common this is a common thing I hear from more experienced investors when they’re talking about trying to relate to maybe the people that haven’t been through one of these cycles. What do you do to sort of mentally prepare them or get them to be at least have some contingency in place to think through this?

Peter

Yeah. So we talk constantly about investing fundamentals. I think there are periods of time where you can illustrate the fact that investing fundamentals remain timeless, right? So in our strategy meeting in March, this was right after there had been a spike in the ten year Treasury. And as sure as night follows day, all the highest multiple names have traded off 20 or 30%. Why? Fairly simple interest rates. Are there a price to the price of time? So if the price of time goes up, you’re less willing to wait for future cash flows that has an impact on valuations.

All these things are, you know. Graham and Dodd type stuff, right? These are these are teachings that are. A century old. But they remain fairly timeless lessons and eventually investing fundamentals will have their say. But in the meantime, you know, I think you’ve got to relate the lessons that we’ve learned as an organization and imbue the organization with those lessons as soon as you can, because there’s a great temptation to chase things. Just extraordinary. Right? Remaining disciplined remaining focused. Those are the things that make any investment firm or any organization great or any.

Dave

You know, one of the other things I’ve heard a lot of debate around is like, it’s hard for me to tell because you’d probably be better for finances. But this modern day retail investment trend, commercial trend, that’s like causing massive disruption to markets. How much of that you think is is truly just like a fad and how much do you think this is just like a new way of working a new reality the business has to be factored in. You know, do people need to be monitoring Reddit boards in the future?

Peter

You know, I have a lot of my hedge fund friends say that they’ve got to be very careful with their short book because if one of them shows up on in that Reddit forum.

Dave

It’s going to be a bad couple of days.

Peter

Yes, it’s going to be a bad day. You know, it’s I think that’s just another form of external influence, right? There were corporate raiders. There were activist investors. Now there’s these, you know, meme stocks. I mean, all that stuff is just that’s that’s reality. And I think that that has to go into your into your calculus of in your assessment of risk when you when you make an investment of short of stock or what have you. Yeah, I don’t know if the SEC may have something to say about this, right?

Because there’s some sure there’ll be some investigation of it. But you know, if you look at some of these, these trading apps, I mean, they’re they look like games, right? It’s, you know, if people are making money doing it, then you can expect there will be more of it. But it’s not investing, right? It’s not investing. It really looks like entertainment, which can be a very expensive form of entertainment if you get it wrong.

Dave

Yeah, I know it’s what’s fascinating for me. Just taking it back to my military experience is when you go overseas and you’re you’re in combat and you’re you see some adaptation in the battlefield about how the enemy is reacting and you try to understand like, OK, well, this is fundamentally different than. You know of what we were trained for, what we expected. It seems it might even seem irrational. You know, one of the things is, would you just stick to the base fundamentals or do you have to actually evolve or adapt? You know how you’re approaching this situation based on this, you know, this is something you to be more pervasive. And you know, the end of the day, it’s about winning, right? And so you have to adapt to win. And you know, if you know, if you don’t, then you you’re going to lose. And, you know, in sports analogies that that sort of the person that can anticipate having the fastest first half step has a huge advantage, right? And so always trying to stay at that cutting edge is, you know, sort of fundamental of how we operate as I think about this and in terms of like some people that I’ve, you know, I’ve spoken to recently on the portfolio management side is, you know, they’re sort of struggling with this idea that the fundamentals don’t matter right now. Like, you can know what’s going to happen or predict what’s going to happen perfectly. And yet you’d still, you know, lose money on the trade or fail and egos goes. That seems disorienting. And then you couple that with what’s causing this.

And they said, Well, it’s it’s something that’s like to you. It’s feels like more like a game that you know, people made than our professionals are playing. They go, Well, do I want to be doing this anymore? So it’s, you know, it’s interesting is is a sort of Russell through this.

I didn’t know if you had any thoughts.

Peter

Well, you don’t get if you’re if your performance is assessed on an hourly or a daily or weekly basis. I think you can’t ignore what’s going on with point the the fractional high velocity share trading in the meme stocks and so forth.

You know, fortunately, our businesses evaluated more and over longer periods of time. And so, you know, the vintages, if you will, of funds, the 2016 vintage of the 2018 vintage of the 2012 vintage, the performance of those funds takes time to develop and the test of your strategies.

How can that how does your strategy produce over much longer period of time? In our case, 38 years. Right. That’s I think that’s a subtle but important difference in our business versus the hedge fund or public equities business.

Dave

Hence, why you you’re always stressing the fundamentals to lead your team. Yeah. So over time, your confidence will play out. Well, Peter, look, I really appreciate you spend the time today. Before you go, is there any books you’re reading now that you’re finding, you know, particularly compelling and they don’t need to be about this, they could just be something of interest. You know, people listening to this always. We’re trying to figure out how to hide how to be better. So I’d be curious if there’s anything right now that you’re watching or listening to or reading that is, you know, sort of pique your interest.

Peter

It’s called the indifferent stars above just a fascinating and gripping tale of the story of the Donner Party. So I’ve been recommending that book recently.

Dave

Which and why why so fascinating to you?

Peter

It’s a real object lesson in handling adversity and what the compromises many people had to make in that party in order to survive. And then what the aftermath of some of those decisions were in the years and decades following that, that extraordinarily traumatic story. But it’s also an interesting lesson in leadership. Some of the decisions that were made that led the donor party into this very, very unfortunate and frankly unnecessary trial. And I thought, I thought it was. It’s an extraordinary, well-written, a fascinating story. But there are some leadership lessons to be drawn from that as well.

Dave

Very cool. Awesome. Peter, thanks so much for your time today. We really appreciate you joining us. My great pleasure, Dave. one more thing before we finish the episode, the CrossLead podcast is produced by the team at Truth Work Media. I want to make this the best leadership podcast available, so I would love to get your feedback. Our goal this season is to have authentic conversations with special operators, business leaders and thought leaders on the topics of leadership and agility. If you have any feedback, suggested topics or leaders that you want to hear from, please email me at contact@crosslead.com. If you found this episode interesting. Please share it with a friend and drop us a rating until next time. Thank you for joining.