The Cross-Platform Playbook w/ Bain Capital’s David Gross

David Gross, co-managing partner of Bain Capital, discusses the firm's distinctive approach to private equity, emphasizing a cross-platform strategy over a multi-asset model. Bain Capital focuses on leveraging synergies across various asset classes, including real estate, venture capital, private credit, and private equity, to drive investment performance rather than merely increasing assets under management. Gross highlights the importance of internal talent and collaboration across geographies and sectors, such as life sciences and real estate, to foster innovation and growth. The firm’s venture investments provide strategic insights into emerging technologies, enhancing its broader investment strategy.

• The private equity industry has experienced significant growth and evolution, leading to a variety of strategies among major players.
• Growth in the industry is driven by new pools of capital and the penetration of private equity and private credit into large asset classes.
• The industry has become stratified, with different models emerging, including multi-asset class players and model line players focused on specific areas.
• An "arms race of capabilities" is occurring, with firms differentiating through packaging and distributing alternative asset products, strategic use of balance sheets, or building platforms with deep capabilities.

"It has been striking how much the industry has really grown and evolved. And I'd highlight the growth point because there are a whole bunch of penetration waves that continue to benefit the industry."

• The industry is benefiting from continuous waves of growth and capital penetration, leading to diversification and evolution.

"When Bain Capital and our competitors started off, we more or less look like one another. But now we've evolved to having different models."

• Initially, firms were similar, but now different models and strategies have emerged, reflecting the industry's evolution.

"There's also been what I call kind of an arms race of capabilities which is different players are trying to differentiate."

• Firms are striving to differentiate themselves by enhancing their capabilities, reflecting competitive dynamics in the industry.

• Bain Capital's strategy involves pursuing cross synergies rather than simply expanding businesses to their maximum size.
• The firm focuses on a cross-platform strategy, which is distinct from a multi-asset strategy.
• Bain Capital expanded into multiple asset classes earlier than many competitors, driven by the recognition of opportunities in these segments.
• The expansion was also fueled by an organic talent strategy, leveraging entrepreneurial talent within the firm.

"The strategy is to get cross synergies. It's not just to get into a business and make it as big as it can be."

• Bain Capital aims for synergies across its portfolio, prioritizing strategic integration over mere expansion.

"It strikes me that your decision to expand into multiple asset classes really did happen earlier than many competitors."

• Bain Capital's early expansion into various asset classes set it apart from competitors and was driven by strategic foresight.

"It really emerged as an organic talent strategy, which was that we had entrepreneurial, talented people who saw an opportunity."

• The firm's growth into new asset classes was supported by leveraging internal talent and entrepreneurial spirit.

• Bain Capital emphasizes breaking down boundaries and promoting information sharing across business units.
• Collaboration is encouraged and rewarded, fostering a culture of teamwork and shared success.
• The firm's approach to talent management is integral to its strategy, supporting its multi-asset and cross-platform initiatives.

"You have to take the boundaries down. You have to ensure that there's information sharing across the business units."

• Effective collaboration and information sharing are crucial to Bain Capital's operational strategy and success.

"You have to promote and reward collaboration."

• Bain Capital values and incentivizes collaboration, recognizing its importance in achieving strategic goals.

• Bain Capital's expansion strategy focuses on leveraging internal talent rather than hiring externally, creating an internal and organic growth model.
• The primary goal of expanding into new business areas is to strengthen Bain Capital's core competencies, such as private equity and credit.
• The decision to enter new business sectors is driven by the potential for synergy and the ability to reinforce the core business.

"If you look at all of our new businesses, most of our senior leaders have come from Bain Capital. It's not a franchise model of hiring folks from the outside largely, it's an internal and organic model."

• This quote highlights Bain Capital's emphasis on promoting internal talent to lead new business ventures, reinforcing the firm's organic growth strategy.

"Every time we expanded the business, we said, how is that going to strengthen private equity? Or now how is it going to strengthen credit and special situations? What synergies can we pursue across the platform?"

• This quote illustrates the focus on ensuring that any business expansion contributes to strengthening Bain Capital's core areas, emphasizing synergy as a critical factor in decision-making.

• Bain Capital's growth into different asset classes and products was not driven by a grand, centralized strategy but rather developed organically based on talent and potential synergies.
• The firm utilized a strategic lens to assess leverage, synergy, market advantage, and underwriting advantage, but it was not a pre-defined long-term plan.
• The approach evolved over time, adapting to opportunities and advancements in corporate development.

"It really wasn't out of some grand strategy, unified field theory driven from the center that you got into different asset classes and different product. It really was much more organic, it sounds, and driven around by talent."

• This quote underscores the organic nature of Bain Capital's growth, emphasizing the role of talent and synergy over a centralized strategic plan.

"There was a strategic dimension to it in that we asked that question of how could we get leverage, how could we drive synergy? How would it give us a go-to-market advantage?"

• This quote reflects the strategic considerations Bain Capital employed in its growth, focusing on leverage, synergy, and market advantages.

• Bain Capital distinguishes between a multi-asset strategy and a cross-platform strategy, focusing on integration and synergy rather than standalone operations.
• The firm prioritizes high alpha, differentiated segments that drive investment performance, rather than merely increasing assets under management (AUM).
• A cross-platform strategy involves breaking down boundaries, promoting collaboration, and ensuring information sharing across business units to reinforce the entire platform.

"Many of our peers have expanded assets and grown them quite substantially, but in many cases, they are more standalone operations. We've thought about expansion as building a platform."

• This quote highlights Bain Capital's focus on building an integrated platform rather than expanding through standalone operations, emphasizing the importance of synergy.

"The strategy is to get cross synergies. It's not just to get into a business and make it as big as it can be."

• This quote captures the essence of Bain Capital's cross-platform strategy, prioritizing synergies and integration over mere expansion.

• Cross-platform collaboration extends beyond asset classes or business units to include geographies and verticals.
• In healthcare, it requires understanding technology implementation and the roles of payers and providers.
• An example from Bain Capital's Asia business involved collaboration across geographies, leveraging expertise from the U.S. and Europe.
• Investment in Virgin Australia during COVID exemplified cross-platform collaboration, requiring knowledge from various business units.

"If you take healthcare it, which is a significant growing trend, you need to have deep understanding of the technology that is implemented to bring efficiency into a fairly inefficient technology organization in health care."

• Highlights the necessity of technological understanding in healthcare to improve efficiency.

"Most of the investments we made were done by big joint teams across geographies that were bringing the industry expertise and the experience we had in the United States and Europe into Asia."

• Demonstrates how cross-geography collaboration can leverage global expertise for regional success.

"We made an investment in Virgin Australia which is the second largest airline in Australia in the depths of COVID that required operating knowledge of how do you run an airline and consumer knowledge from our private equity team."

• Illustrates the need for diverse expertise in complex investment scenarios, such as airlines during a pandemic.

• Cross asset class collaboration can create unique investment opportunities by combining expertise from different fields.
• An example is the collaboration between life sciences and real estate, focusing on lab space for pharmaceutical and biotech companies.
• Successful collaboration requires understanding the long-term viability of companies to support lease contracts.

"An interesting example is life sciences and real estate where our real estate team has identified lab space as a significant growing opportunity."

• Shows how different asset classes can complement each other to identify growth opportunities.

"Really having a deep understanding of whether that life sciences biotech company is going to have longevity, it becomes a critical question."

• Emphasizes the importance of assessing the sustainability of companies in collaborative investments.

• Bain Capital's venture business has historical roots, originating from early deals in the 1980s.
• The firm has a strategic focus on early-stage businesses and technologies.
• Venture investment is seen as a crucial component of the overall investment strategy.

"Venture was one of our early businesses. In fact, if you go back into the 80s and you look at the early deals that we did, one might go back and call some of those growth capital and kind of venture type deals."

• Indicates the longstanding tradition and strategic importance of venture investments at Bain Capital.

"We were the first backers of Staples when it had just a few sores."

• Provides a historical example of Bain Capital's early involvement in venture investments, highlighting its impact.

• New technologies play a disruptive role, making early-stage technology insight crucial for successful investments.
• Venture businesses are not primarily focused on assets under management but on achieving asymmetric returns.
• The venture business supports the overall strategy by integrating with other business sectors.

"Because of the disruptive importance of new technologies, we can't be great investors in the big scale tech companies or even consumer companies, some cases even industrial technology companies if you don't have direct primary insight and experience into the early stage technology."

• Emphasizes the necessity of understanding early-stage technology to excel in investing in larger tech and consumer companies.

"If we were focused primarily on assets under management, we wouldn't have a venture business."

• Indicates that the primary goal of venture business is not asset management but potential high returns.

"So having venture really is a bellwether in a way of the strategy that we've chosen."

• Highlights that venture business is a key indicator of the strategic direction chosen by the firm.

• Cybersecurity is a major focus, with investments in both venture and private equity.
• The collaboration between venture and private equity teams allows for significant insights and successful large-scale investments.
• Portfolio companies are used to field-test new technologies, aiding in the expansion of venture-backed products.

"Cybersecurity has been a big area of focus. We have deep expertise in our venture team."

• Cybersecurity is a central area with strong expertise within the venture team.

"In a specific category of anti ransomware technology, our cybersecurity head at Bain Capital spearheaded an effort with our venture team to bring that technology to our portfolio companies, in essence field test these technologies."

• Describes the process of using portfolio companies to test and expand new cybersecurity technologies.

"One or two big accounts can lead to a viral expansion of your product sales."

• Highlights the potential for rapid growth in product sales through strategic large accounts.

• Collaboration is driven by belief in the strategy and the mutual benefits it provides.
• Teamwork is essential, with reciprocal support across global offices and industries.
• The strategy relies on a proven track record of mutual benefit and synergy.

"They have to. So we're collaborative, we're team oriented, but what drives people to collaborate and to participate is that they believe in the strategy, they're responding to the strategy, but they feel that this is synergistic."

• Explains that collaboration is based on belief in the strategy and the synergy it creates.

"There's a strong belief and it's been proven over and over again that there's mutual benefit and that's what causes this to happen."

• Stresses the importance of mutual benefit as a driving force for collaboration and strategy execution.

• Future discussions will focus on the globalization of the private asset industry.
• The shift from globalization as an assumed fact to a more complex, multipolar world presents new challenges and opportunities.

"On the next episode of Dry Powder, David and I will take a closer look at the globalization of the private asset industry and the unique challenges and opportunities that are emerging in a multipolar world."

• Previews the upcoming topic of globalization and its impact on the private asset industry.

"Globalization was an assumed fact in most of our careers, Hugh, and that's changing."

• Indicates the changing perception of globalization and its implications for the industry.