First Time Founders with Ed Elson – The Billionaire Who Built His Fortune on Infrastructure

Ed speaks with Michael Dorrell, CEO and co-founder of Stonepeak, a leading alternative investment firm. They discuss why infrastructure assets make good investments, how he honed his fundraising skills, and why getting thrown into the deep end can be the best way to learn. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:36Ed Elson?

  Welcome to First Time Founders. I'm Ed Elson. Most of us don't think twice about the things that make our lives run: high-speed internet, lights that switch on instantly, or even clean water from the tap. But behind all of that is infrastructure, the invisible backbone of modern life. And while most people ignore it, my next guest saw an opportunity hiding in plain sight. In 2011, he created an investment firm focused entirely on infrastructure. Today, his firm manages a $73 billion portfolio and has never lost money on an investment. By investing in what others overlooked, he became a billionaire and proved that sometimes

• 1:19Ed Elson?

  the most seemingly boring bets deliver the most extraordinary returns. This is my conversation with Michael Dorrell, CEO and co-founder of Stonefeed. Michael Dorrell, thank you for joining me. Want to get. Lovely to have you here. Thank you for having me. It's a pleasure. I hope you weren't offended by me saying that you bet on boring assets. That matches my personality, Ed, so it's all good. Okay, good. So you are kind of the ultimate infrastructure investor.

• 1:52Ed Elson?

  And I think people probably know kind of generally what infrastructure is, but maybe not really. So just give us like the breakdown. What is infrastructure? What kind of stuff are you investing in and what kind of drew you to this?

• 2:06Speaker 02

  Sure, I'll give you a a few examples and maybe a bit of a bit of background. So infrastructure is, um, I think it's well known to to to a lot of laypeople, airports, toll roads, electric utilities, really the building blocks of um what the economy and what society sits upon. And um what's unique about these assets is they are incredibly essential. Um, you know, an airport, obviously, a toll road. Um, but they're also natural monopolies in some sense, big, big moats to these businesses. And as a consequence of that, um, they're uh pretty protected

• 2:50Speaker 02

  from um other businesses coming in to compete with them. If you were trying to compete with, say, the local airport here in New York, JFK Airport, you you can't, you can't do it. Um, you contrast that with most other businesses which are um, you know, subject to the um, all the pressures of capitalism, you just get that less in these infrastructure uh businesses.

• 3:11Ed Elson?

  Right.

• 3:12Speaker 02

  And as a consequence of that, they're often regulated. The government won't let you charge what you want to charge because you could, you know, kind of charge anything for some of these, some of these assets. So as a consequence of this, um, you've got very strong visibility into the future cash flows of the business. Um, because you know, demand is um kind of there and growing for a long, long time. Um, and uh your pricing path is pretty well set um through the regulatory regimes around these assets. And so they just provide um. Very stable, long-term, somewhat inflation-linked cash flows.

• 3:56Ed Elson?

  Can we just go through some of the examples of infrastructure assets? So airports, airport terminals, I would imagine like plumbing maybe, utilities, like what?

• 4:07Speaker 02

  Utilities is a good example. I'll tell you how it, I'll tell you how it came about and that'll pick up some of the, some of the assets. So for decades and decades, these businesses were mostly government owned.

• 4:18Ed Elson?

  Yeah.

• 4:19Speaker 02

  And in the late eighties, early nineties in Australia, by the way, my accent, as you picked up, is Australian. A lot of folks in the US.

• 4:29Ed Elson?

  I don't know if anyone could have guessed.

• 4:30Speaker 02

  They, they think I'm, they think I'm a Brit often here in the, the US, which.

• 4:33Ed Elson?

  Really? People think I'm Australian.

• 4:35Speaker 02

  Which, which you would find quite offensive. I, I find, I find it quite flattering, actually. For those who don't know, we're a bunch of, Aussies are a bunch of criminals who came from, from Great Britain.

• 4:46Ed Elson?

  We sent you that, right?

• 4:46Speaker 02

  Exactly. So you'll find a lot of folks in this infrastructure game have Aussie accents. And the reason for that is that the asset class emanated out of Australia originally. And, and so in the late eighties, early nineties, a bunch of the Aussie state governments started to go bankrupt or pretty close to bankruptcy. And so they began to sell off these businesses that, you know, up until then had been government owned. And so it started with toll roads and airports. And there's a company in Australia called Macquarie, which is pretty well known now globally. That's where I started my career.

• 5:26Ed Elson?

  Yeah.

• 5:27Speaker 02

  But they were really, you know, Johnny on the spot in Australia when this started to happen. And they were unbelievably clever about it. So the state government started to sell off these, these assets. Macquarie didn't have the capital it would need to go and buy an airport or buy a toll road. And so a good example is Sydney Airport was sold in mid nineties, late nineties, some, something like that. And so what Macquarie did is, um, they said, we don't have the money, but we love this asset. We can see how um, the, the, the moat around Sydney Airport is enormous. You, if you want to travel in or out of Sydney, you're gonna go through that uh, airport.

• 6:09Speaker 02

  Um, and so what they did is they went and they IPO'd a cash box. They said, look, we're gonna bid on Sydney Airport. Um, so subscribe to this listed company that has nothing but, you know, the opportunity to go and bid. Sounds kind of like a SPAC in a way. It's exactly like a SPAC, a special purpose SPAC, exactly right. Um, and so Macquarie were successful in doing that. Um, and then they, so they had this airport vehicle, which could go around and buy other airports. And they did the same thing at toll roads, they did the same thing in utilities, they did the same thing in communications, infrastructure, things like cell phone towers. And they really um, uh, on their own, established this asset class as a um,

• 6:53Speaker 02

  opportunity for private capital to come in and invest in these, you know, what up until then had been government owned assets. And they took that to um, Europe and they took it to Canada. And they ultimately brought it to the US, which said, which is how I landed um, in the US. Uh, but it's all those essential services, uh, businesses, airports, toll roads, utilities, provision of food, uh, provision of communications, um, uh, and, and, and primarily it sits in three different industries. Um, energy, so it may be oil and gas, uh, pipelines, it may be uh, green energy, wind uh, turbines and solar, et cetera. So it's one category.

• 7:35Speaker 02

  Uh, communications, infrastructure, uh, data centers, a sort of asset class de jour at the moment within infrastructure. Um, but you've got cell phone towers as well, you've got fiber optic cables, things like that. Um, and then the third category is transportation, rail, toll roads, port assets, port related assets, logistic assets. So they're the three broad uh, buckets. And what's um, uh, particularly interesting about those three buckets at the moment is you've got.

• 8:09Speaker 02

  Three pretty big mega trends that sit behind them. So on the digital side, it's pretty obvious. You know, you've had massive increase in consumption of data over the last two decades or so. It's grown at something like fifty percent compounded per annum. And then AI has come about the last two years and just put, you know, fuel on that fire. So

• 8:32Speaker 02

  you need enormous infrastructure to support all of the data that we're consuming. Again, whether it be data centers, whether it be fibre cables, whether it be cellphone towers, all that stuff that we take for granted when we use our phone or we go and stream on our laptop or whatnot. On the energy side, you've got all the energy transition going on. So you've got a huge mega trend going on there. And frankly, you've got to upkeep all the traditional energy as well. And then on the transport and logistics side, you've got all this friend shoring and reshoring that's going on. So you've got massive changes in the way that our supply chains and logistics are working

• 9:13Speaker 02

  as a consequence of some of these geopolitical fractures that you see around the world. So, you know, from an investment standpoint, a very boring asset class, but you've got these pretty big macro trends that are providing tailwinds for those assets.

• 9:31Ed Elson?

  Yeah. And also, I mean, everything that you described there, it's just so essential to the economy. Like every, I mean, the energy and the data centers, like this is the stuff that basically keeps the world running. And I guess that's why I'm a little surprised that it was kind of new, that you showed up and you said, I'm going to only be investing in infrastructure and infrastructure assets.

• 9:59Ed Elson?

  I mean, I just would have thought that these are the kinds of investments where everyone's like, oh, my God, we got, we got to try to earn the data center. We got to try to earn the power plant or whatever it is.

• 10:09Speaker 02

  Yeah, it's so fascinating. So, you know, we've had a private equity asset class for years and years and years, you know, it started really in the US from, you know, KKR would have been one of the earliest and Blackstone and Apollo. And so that's an asset class that's developed over years and years and years. And then at the other end of the spectrum, you've had the credit asset class and private credits developed, you know, again, over decades and decades and decades. But there wasn't much that sat in between those two in terms of what private investors could get access to. And that's frankly where infrastructure

• 10:49Speaker 02

  sits. It sits at the lower risk end of infrastructure. It has a lot of credit characteristics. So, you know, what can you do with a long term credit investment? You can sit down there and you can write out your cash flows for, if you buy a 30 year government bond, you know with certainty what your cash flows are for 30 years. If you go and buy a, you know, a mature toll road or a mature airport, you can't write exactly what your cash flows will be for 30 years. But you can, you can sure forecast those with a big, big degree of accuracy relative to say, if I'm trying to forecast what Google or, you know, one of those more exciting companies might, might do. And so it's got a lot of bond characteristics.

• 11:31Speaker 02

  At the other end of the spectrum, you've got things like, say, I think a data center is a good example, where you've got, these days, you've got nice contracts on data centers. So, you know, Microsoft or Google or, or Amazon will, these days, give you a 15 year contract to be in your data center. And, and so not to the same degree you can with one of these airports or mature toll roads, but you can have some decent degree of maybe what your worst case outcome is because you've got that 15 year contract sitting there.

• 12:09Speaker 02

  It's got some private equity characteristics as well. So there was just a part of the investment spectrum, I suppose, that was there overlooked by private capital.

• 12:24Speaker 02

  And that's what Macquarie, you know, identified in Australia and exploited and and pretty quickly, once uh folks had exposure to this asset class, a lot of excitement grew around it. You know, when I turned up to the US, I got here in O one. So I've been here for, what is it, twenty three, twenty four years. And I was, to be clear, I was a young whippersnapper. I was twenty five or twenty six years old or something like that. And so there was a lot of education we were doing around the US. We were going and visiting pension funds and insurance companies, big institutional investors.

• 12:56Ed Elson?

  Yeah.

• 12:57Speaker 02

  Really um educating them on the characteristics of this of this asset class.

• 13:01Ed Elson?

  You're an analyst at this point. What what is, where are you in your career?

• 13:06Speaker 02

  Yeah, one step up, one step up from an analyst. But but, you know, there were six people in that office and you were the jack of all trades. First, the first thing I ever did was a railroad investment in the US. And um we had a client, we we we were scraping around for clients in those days, you know, uh we were brand new to the US. No one had had a Macquarie. Um we're all Australians, um so brand new to the US. And uh so we had a client, it was literally a management team who wanted to buy a railroad out of bankruptcy. And my boss came to me and said, hi, um Mike, this is yours. I want you to go and help this guy finance. Um, you know, I want you to help him raise equity for this railroad, help him raise debt for this railroad, just help him do the whole

• 13:50Speaker 02

  thing. I said, oh, fantastic. I said, do we have like a list of equity contacts I can call to uh uh start this off and a bunch of lenders I can call to get this going? And he goes, yeah, we got this fantastic service called the internet. So that was a little bit of what I was thrown into over here. So so um, you know, I did that um entire transaction on my own. I did the um modeling for it.

• 14:17Ed Elson?

  Just at a very basic level, you're trying to figure out how can we raise the money to to purchase, to make the investment, and also what are the returns going to be? And that's essentially it.

• 14:27Speaker 02

  You got it. And you're modeling it and you're you're negotiating a uh purchase out of bankruptcy. So you're trying to understand the bankruptcy uh laws. You're doing it all.

• 14:37Speaker 02

  And I remember um I went to, so I didn't know what I was doing, okay, to be quite clear. I knew the modeling part of it, I'd done, you know, I knew that quite well.

• 14:44Ed Elson?

  Yeah.

• 14:45Speaker 02

  The raising money, I'd never done it before. I literally got on the internet and looked up private equity firms and started calling around.

• 14:51Ed Elson?

  Wow.

• 14:52Speaker 02

  Um raising bank debt, I'd never done that before. I remember.

• 14:56Ed Elson?

  And by the way, this is the kind of stuff that today probably takes like maybe a ten to fifteen to twenty person team to do all the diligence on all of that stuff. And you're basically just doing it on your own, twenty five year old.

• 15:07Speaker 02

  It takes years and years of, it's crazy. It actually doesn't take years and years of training, but the way we set up ourselves in these banks, it's so structured. Yeah, it takes years and years to get to this level.

• 15:15Ed Elson?

  Right.

• 15:16Speaker 02

  So one of the great fortunes I had in my career is I just got thrown into this. Nothing special about me. I'm just happened to be, you know, in this little, little, little team with a boss who had a bit of trust and, and gave me all this, all this rope.

• 15:28Ed Elson?

  Yeah.

• 15:28Speaker 02

  But I um, I went to my first bank meeting and um, uh, you know, I'm the advisor to the client. So the client's looking to me for, you know, to guide him through this process. I didn't know what the hell I'm doing. And uh, and the, the um, the uh bankers, they said to me, hey, is this gonna be a um, a club deal or an underwritten deal? And, and what they mean by that, okay, I didn't have a clue what he meant, but what they, what, what they mean by that is if it's a club deal, I, I figured maybe we're raising a hundred million dollars of, of, of debt at the time.

• 16:01Ed Elson?

  Yeah.

• 16:01Speaker 02

  If it's a club deal, it means, hey, let's go and club together, three or four banks, and they'll put in twenty five million bucks each together to get to a hundred. So, so not one bank is taking on all the risk of the hundred. If it's an underwritten deal, then one bank will put up the whole hundred. And then they'll take all the risk on the hundred and they'll subsequently turn around and try and sell down some of their exposure to, to other banks. So there's, there's a big difference.

• 16:25Ed Elson?

  Yes.

• 16:26Speaker 02

  And he said to me, is this a syndic, is this a syndic, an underwritten deal or is this a club deal? I think to myself, what do I say here? I don't even know what those terms mean. And I said, oh, we're, we're open to either. He goes, fantastic. That's what I wanted to hear. I said, oh, good. So it was a lot of that.

• 16:43Ed Elson?

  Yeah.

• 16:43Speaker 02

  I look back at that and, you know, I think, um, you know, I've listened to a bunch of your podcasts, which, which, which I love and there's a strong entrepreneur, obviously a strong entrepreneurial element.

• 16:52Ed Elson?

  Yeah.

• 16:53Speaker 02

  To, to, to, to them all. And, and I look back at, you know, I'm, I'm not a natural entrepreneur. My, my dad's a teacher, my mom's a social worker. I didn't grow up in, in, in business, but the time in my career where I learnt to be an entrepreneur was that time that, you know, that, that, you know, seven years, as it turned out, in New York, I was at Macquarie for ten, but seven of those were in New York, where for quite some years, we had a little team where you just had to do it all and you were completely out of your depths. And, and you're trying to be like a duck, okay? On, above water, you're trying to be calm, but underwater, you're paddling like, like, like mad.

• 17:27Ed Elson?

  Yeah.

• 17:28Speaker 02

  And so, you know, I worked, um, my absolute butt off during those times to keep up, to make sure I wasn't doing stupid stuff. Um, but it puts you in a situation where A, you're on a very, very deep learning curve. But I think most importantly, you learn to be, become comfortable in uncertainty.

• 17:46Ed Elson?

  Yes.

• 17:47Speaker 02

  You learn to, um, say to yourself, okay, look, I'll take all this on board. Some of it I know, but a lot of it I don't, but, but I'm gonna go away and work it out.

• 17:55Ed Elson?

  Hundred percent.

• 17:56Speaker 02

  You know, and, and it's amazing, um, once you, once you step through the, the threshold of being comfortable in that uncertainty, it's so empowering.

• 18:07Ed Elson?

  Yep.

• 18:07Speaker 02

  And if I go down the, the, the road a little bit, um, you know, before we, uh, started Stone Peak, we tried to do the same thing for, uh, Blackstone. So I went from Macquarie to Blackstone to Stone Peak.

• 18:23Ed Elson?

  So you, you, you, you came to, came to the US, you're working at Macquarie, you're kind of thrown in the deep end. And then at thirty, you decide, I'm done with working for Macquarie, I want to stop my own thing.

• 18:36Speaker 02

  I'm thirty-one, thirty-two.

• 18:37Ed Elson?

  Yeah.

• 18:37Speaker 02

  And, um, you know, by that stage, I've, I've risen up to be, uh, the sort of what I call executive director, which is the equivalent of a partner at, at Macquarie.

• 18:47Ed Elson?

  Yeah.

• 18:48Speaker 02

  So there's nowhere left to go.

• 18:49Ed Elson?

  Yes.

• 18:50Speaker 02

  And, um, this is in about two thousand and. Six, two thousand and seven. Mm hmm. So got here in O one, no one had heard of Macquarie, no one had heard of infrastructure. Fast forward to O six, um, all the Wall Street firms started to look at Macquarie and see how much money they were making out of this infrastructure game and how interesting these infrastructure assets were. So in the space of uh eighteen months, every big Wall Street firm started an infrastructure business. So Credit Suisse started one, teamed up with GE to start one called uh GOP, which is quite well known these days. Morgan Stanley started one, Goldman started one, Citi started one, et cetera. And um, you know, for those of

• 19:33Speaker 02

  you in private equity, what you will, what you'll know is that um, to go and start a new private equity fund is incredibly difficult. Um, and to do that, you need to be a very, very, very well known private equity executive, like a big name. And then you go out on your own as a big name and maybe you'll raise a billion bucks or two billion bucks. And that's, that's, that's, you know, rare and you've got to be uh very well known to pull that off. So contrast that with uh what happened in infrastructure. So in infrastructure, because it's a nascent asset class, hadn't existed in the US at all up until that point. It was just Macquarie really. In O six, O seven, you have a half dozen new infrastructure funds start and the smallest one is about three billion dollars, the largest one is

• 20:18Speaker 02

  about five billion dollars. And so I was sitting there um saying, geez, I've been doing this now for the better part of a decade. I'm pretty young uh to be starting a, a, a firm or going out and raising money. But how often are you going to be expert in a nascent area where people are really starting to get really interested in it? And so I think we've all got ambitions to be entrepreneurial at some time, and I certainly did. Um, and I remember, I remember this very well. I sat there at that time and I said, you know what? Um. I probably am younger than I think I need to be to go and do this. But how often in my life am I going to be in this intersection of an area that I'm expert in and people actually want exposure Yes. Uh, to it, like never again. Exactly.

• 21:03Speaker 02

  And so, um, what I did is, um, I went around. You know, I can say this now, it was years ago, but I went around to my buddies at Macquarie and said, hi, who wants to do this with me? Cause I didn't want to do it on my own. I had a viewpoint that it was really important to have a partner in starting up something. You can do it on your own, but I'll tell you, like, having been through it. There's so many ups and downs that when I'm down, I need someone who says, come on, man, like puts the arm around the shoulder. And when that person's down, he needs me or she needs me to put my arm around the shoulder and pick them up. So I think a partner is really important. So I went around to a few folks and, you know, the, they were, um, uh, these were good friends of mine and, you know, I kept going, yeah, maybe, maybe, maybe, but no one would bite.

• 21:45Speaker 02

  And then, um, eventually I said, you know what? I don't think these folks are gonna do it. And, um, so eventually I went to a guy who I knew a little bit less well. Um, and I knew it was a bit risky, like he could easily turn around and say to Macquarie, hey, Mike's leaving and, you know, I'd be kicked out of the place. But anyway, he went for it. Um, and so what we did is, uh, we said, look, let's go and pursue, um, doing this on our own. And let's also go and pursue doing this with a partner. Mm hmm. And rather than, and when I say partner, I mean a private equity firm. And rather than turn up to a private equity firm and say, hey, can you give me a job?

• 22:27Speaker 02

  Let's run it like you'd run a competitive process. And so we pulled together a, and we did this in our spare time, weekends, you know, late at night, early in the morning. We pulled together a big, you know, fifty, sixty page PowerPoint deck. And we went to, uh, Blackstone and we went to a couple of other private equity firms and we said, look, um, this is back in. Early two thousand and eight and we said, look, um, we're getting paid a bonus on uh end of May. So on, on June one, we're leaving and uh, uh, we're gonna, you know, choose a partner. And if it's you, fantastic. If not, no problems. And so it really empowered us whereby um,

• 23:13Speaker 02

  we got some competitive tension amongst these various folks who could be our partner. We had a uh, a very memorable lunch with Steve Schwartzman. So for those of you don't know, Steve Schwartzman is probably the biggest name in private equity. Yeah. In the world. He runs uh Blackstone. He founded Blackstone. I remember this really well. So um, we were so used to giving this pitch by this time with our little PowerPoint deck. And so Steve came into the, it was, it was a lunchroom just off his office, like, looked like this where we are. And it was me and Trent and it was Steve and um, I uh, went to jump into our pitch. Steve said, put your pitch book away. Enjoy the lunch.

• 23:57Speaker 02

  Yeah, enjoy the lunch. And he started to chat and he said, um, have you guys ever started a business uh before? No, we haven't. And he goes, well, like, how the hell are you gonna do that? You know? And uh, this is where this whole time at Macquarie in the deep end came in. I remember saying, we'll, we'll work it out. You know, like, we'll work it out. And I could just tell he like, he, I think he appreciated that. I think he understood it. Yeah, he understood it. He um, uh, you know, he's a founder himself and uh, he'd been through all that himself and he tells similar stories to this himself. And so that understanding that you'll just work it out is so incredibly. Yes. Powerful.

• 24:44Speaker 02

  We'll be right back.

• 24:55Scott Galloway?

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• 26:03Ed Elson?

  We're back with first time founders. I think you and I have both been lucky in that it sounds like you arrived at a place where someone in a senior position just gave you a ton of responsibility and said, "Go figure it out." You say, "How am I going to do it? Use the internet. I don't know. Figure it out." You'll figure something out. I've had a similar experience as well where with Scott, he says, "Go start a podcast. Go do this. Go do that. Just figure it out." And I think there's such an important learning there in, one, if you want to do anything great, you're going to have to do things where you feel uncomfortable and you feel like an imposter and you don't feel like you belong.

• 26:47Ed Elson?

  And I think the perfect example is what you said about, "Oh, is it a club deal or is it an underwritten deal?" And he says, "We're open to either." That's the perfect example. You're never going to be able, if you want to do something great, you can't do all of the homework for those moments. You have to be able to go into a situation and not really know how it's going to go down. So that's the first learning. And the second learning, I would say, is Good on people in positions of senior management for giving responsibility to people. And it's just such a powerful thing if you are a manager or if you're a leader to say to a young

• 27:28Ed Elson?

  person, I know you don't know exactly what you're doing, but I trust you to figure it out. And it it it completely transforms people's careers.

• 27:37Speaker 02

  Yeah.

• 27:38Ed Elson?

  And it sounds like that's exactly what happened.

• 27:40Speaker 02

  I I I wholeheartedly agree with with with both those points. And I may I may add one to it, which is um. One of my takeaways is do it younger than you think.

• 27:51Ed Elson?

  Yeah.

• 27:52Speaker 02

  You know, um, I know myself that um, I truly thought I was too young to do this, but I felt compelled to do it because of the moment in time. But when I look back, I realize um, it is so difficult to get these things off the ground. It is so fantastically risky um, to do it. It takes so much energy and resilience and knockbacks, et cetera. It really is a young person's game. And like, there are exceptions, like, I'm not saying, you know, you can't do it if you're older.

• 28:31Speaker 02

  But I know myself, as I as I got like, you you get you get married, you have kids, you get financial responsibilities, you get mortgages, et cetera, et cetera. You don't have the ability to um, uh, walk away from it. You you you can't go without getting a regular paycheck.

• 28:50Ed Elson?

  Yeah.

• 28:51Speaker 02

  For very long. You're frankly, like, you probably don't have the um, physical and emotional resilience that you have when you're that you you're willing to get beat up so badly when you're young.

• 29:03Ed Elson?

  Willing to get humiliated, willing to put in all of your energy and it not really work out. I mean, so many of these things. And by the way, this is why it frustrates me so much uh, in in large, often in larger organizations, where there's there's this tendency among management to say, oh, we we want to make sure you have some more experience, or we we we would prefer someone who's been doing this for decades than a young person. It's like, actually, the young person is.

• 29:34Ed Elson?

  So much more, there's so much more energized to get the job done, which is, can be just as powerful as experience.

• 29:40Speaker 02

  Yeah, it's funny you say that. I often say that to, just to my team, that I think that

• 29:48Speaker 02

  young energy is underrated.

• 29:50Ed Elson?

  Yeah.

• 29:50Speaker 02

  And experience is overrated.

• 29:53Ed Elson?

  Hundred percent.

• 29:53Speaker 02

  And, and don't get me wrong, like, experience is very important. Like, there, there, there are certain situations where you throw a young kid into it, they just, they just won't get it done the way a more experienced person could, could get it done. So I'm not, I'm not dismissing experience at all. It's, it's really important. But it's, it's, it's, I think, generally speaking, it's overrated.

• 30:12Ed Elson?

  Overrated.

• 30:13Speaker 02

  Relative to the young energy. Now, to be clear, like, if, if, if you're a young, uh, person early in your career and you're given that responsibility, like, another thing I've observed is some folks will grab it. And you can just tell they are so, um, nervous about it, um, and determined to get it done. Right. And obsessive as maybe they're, they're obsessed to get it right. That makes me feel comfortable. Okay. Some folks, though, are casual about it and, you know, uh, um, don't take the responsibility as, as the opportunity it is or as seriously as it, as it is. And that can be quite dangerous.

• 30:51Ed Elson?

  Yes.

• 30:51Speaker 02

  Because my, um, like you, uh, I can just tell from the way you're, you're talking about it. My strong inclination as a leader is to give that responsibility. It's what I wanted as a, as a person coming through the ranks. I think you, you want people on the front lines, as young as you can get them, in as deep water as you can get them.

• 31:11Ed Elson?

  Yeah.

• 31:11Speaker 02

  With enough, you know, uh, risk management around them, like, they can't do something that will, you know, impair the, the, like, I won't let someone put money to work.

• 31:20Ed Elson?

  Yeah.

• 31:20Speaker 02

  But I'll sure as hell let them go out and find a transaction and, and, and, and do all the execution around that, that transaction. And, you know, I'll let them do an awful lot.

• 31:28Ed Elson?

  I want to talk about launching Stone Peak itself. So, um, you, you, you go to Blackstone and then you spin it out into its own firm called Stone Peak.

• 31:40Speaker 02

  We had the lunch with Steve.

• 31:41Ed Elson?

  Yeah.

• 31:41Speaker 02

  Um, ultimately, we got, uh, four different offers. Like, everyone we spoke to gave us an offer, including what's called a private placement agent. Private placement agent is a firm that helps you raise the money yourself. So that was a do it yourself option. That was my preference. I gotta say, it was, you know, quite flattering to meet with Steve and he's a. Unbelievable. Uh, I mean this in a very positive way, salesperson. And so Trent had a preference for Blackstone. It was easy to talk me into doing that. And so we ended up taking this offer at Blackstone. So I remember this really well. We got part of our bonuses. I went and the, the, the head of Macquarie, who's based in Australia, very intimidating guy, really the founder of infrastructure, a guy called Nicholas Moore.

• 32:27Speaker 02

  Um, one of the smartest people you'll meet, one of the most intimidating people you'll meet. He happened to be in New York the day that we were leaving. So I went and resigned in person to Nicholas. I thought it was the manly thing to do. Probably regretted it halfway through. Um, got marched out.

• 32:48Ed Elson?

  Traitor.

• 32:51Speaker 02

  Um, and, uh, and then we had four months of gardening leave. It's the only break I've had in my whole career. Which we took advantage of. And then I started at, uh, Blackstone on November one of oh eight. And to put that in perspective for folks, um, so when I left Macquarie, Blackstone paid us for the Macquarie shares we had to give up.

• 33:18Speaker 02

  Because what happens is you get, you know, shares.

• 33:20Ed Elson?

  Yeah.

• 33:20Speaker 02

  In your comp and they don't invest and let's just stay. And so we lose the unvested shares.

• 33:25Ed Elson?

  Yeah.

• 33:25Speaker 02

  So I had three million dollars of Macquarie shares. It was all the money in the world to me at that time. That I had to leave behind. So Blackstone, uh, in

• 33:35Ed Elson?

  Covered it.

• 33:36Speaker 02

  Covered it. And Blackstone covered it with three million dollars of Blackstone shares. And the way that, um, Blackstone calculated how many shares to give me, and Trent was the same. Is they said, look, we'll look at the average Blackstone share price for the month before I start, which was October of oh eight. And we'll give you enough shares to give you a three million bucks worth of shares. So the average Blackstone share price in October of oh eight, um, was, uh, just over sixteen dollars. The average share price of Blackstone shares in November of oh eight was three dollars. Okay. So this might, this, this might be a bit before your time, but that was, we got there.

• 34:15Ed Elson?

  I've heard, I've heard of this thing, the financial crisis.

• 34:18Speaker 02

  Yeah. So we, we sat there, we thought, wow, you know, that. God, thank God we went the Blackstone route and not the do it yourself route. Cause we would have been sitting there for three years like twiddling our thumbs and we'd done it ourselves. So, um, we went the Blackstone, uh, uh, uh, route and I had the best experience, um, there. So anyway, we, we did that for, uh, two and a bit years there, but what the other thing we learned, which is incredibly important for what ultimately we did, is we learned how to fundraise. So, you know, no one's got a better network of, uh, investment clients than Blackstone.

• 34:56Speaker 02

  And so we were able to go and see really every pension fund, every sovereign wealth fund, every insurance company around the world.

• 35:04Ed Elson?

  This is the part that I think is the most remarkable, um, because when you describe the,

• 35:12Ed Elson?

  how Macquarie got into the infrastructure game, they had to go out and raise a stack because the, the, the, the problem with infrastructure is it's so capital intensive. That's kind of the big barrier to investing in these assets is you've got to raise billions of dollars. If you, you can't just go out and invest in a data center, you need to like, you need to raise a ton of money. They're so capital intensive. And so the idea that you looked at that as a young guy who's kind of done a little bit of investing and then said, okay, I could probably go out and raise this on my own. And now you're at $73 billion in AUM.

• 35:49Ed Elson?

  You've got like 300 employees. That's the part that I think we need to hear is, um, is the fundraising. How you, how do you go out and raise that amount of money? How do you walk into a room and convince someone that, yes, me, the young Australian lad who just showed up here, I'm going to be a good steward of your capital.

• 36:11Speaker 02

  It's reps. It's anything in life is reps, you know, so, um.

• 36:17Speaker 02

  First couple of times you go into it, I'd say the first fifty times you go into a meeting, you're finding your footing. Yeah. You're getting your pitch down, you're feeling comfortable, you're getting your comfort level up, et cetera, et cetera. So, you know, when I was at Blackstone, I did, I bet I did close to a thousand pitches at Blackstone, something like that. And so through that process, you, and look, I knew the asset class cold. I felt confident we would be good at this. It's something I had a lot of experience in.

• 36:57Speaker 02

  I feel more at home with the folks who run these pension funds, who are often teachers or come from some background other than Wall Street. That's, you know, I've been on Wall Street a long time now, so maybe it's equal, but I feel certainly as home there as I do with any Wall Street person. It took me a long time to get comfortable being on Wall Street. My approach to it, and look, there's plenty of approaches to it, but my approach to it is obviously learn your material, of course, but just go to these meetings, be yourself and be very transparent about what you have to offer.

• 37:40Speaker 02

  And if it's something they want, you know, they'll grab it. If it's something they don't want, they'll politely decline and, you know, ask you to come back next year and maybe things will be different next year. But there's no substitute for reps. And we've had, you know, we've got a bunch of different platforms now at Stone Peak. So I'm certainly not the only one fundraising. And for those who lead these other products who are out there fundraising now as well,

• 38:15Speaker 02

  my advice to all of them is simply been, all you can do is get out there and do it. Okay. Come to a couple of meetings with me and you can hear how I do it. To get a little bit of an idea for um what's involved, but then just get out there and do it. And you'll have twenty meetings that suck.

• 38:33Ed Elson?

  Yes.

• 38:33Speaker 02

  You know, like I had one uh colleague, um Hage, who used to stay, he'll laugh at this because I I rib him about it, but he used to start his meetings when he first started fundraising with a story about how his old boss had died. I said, mate, like, I don't think you want to start your pitch.

• 38:51Ed Elson?

  There was something there.

• 38:52Speaker 02

  The story of death, okay? Come in, come in a different way. And uh we laugh about it now because he's um and he's one of the most lovely, personable people you could ever want to meet. Very bright. So he's become a fantastic fundraiser, but his first fifty meetings were awful.

• 39:11Ed Elson?

  Yeah.

• 39:11Speaker 02

  And it comes a little bit to what you said earlier on, that you've got to go through some humiliation.

• 39:15Ed Elson?

  Yeah.

• 39:16Speaker 02

  Okay. And if if you can't like, you've got to lose your sensitivity. Like, I couldn't.

• 39:21Ed Elson?

  Yeah.

• 39:21Speaker 02

  You know, like, all through my career, I've had people roll their eyes at me or or, you know, like, I've been in plenty of um. You know, I remember early in my career, I was in a um, we had, we had a Monday morning meeting at Macquarie. And where the the the uh team, the whole team would sit around, the bosses and, you know, um, probably thirty, forty people in that meeting room. And um I remember I got tongue tied in there uh one time, you know, they asked me to talk about a deal and I tried to talk and it just didn't come out.

• 39:53Ed Elson?

  Yeah.

• 39:54Speaker 02

  And I've had plenty of experiences similarly, like where I completely screwed up or haven't performed the way I wanted to or have embarrassed myself. So what? Dust yourself off.

• 40:05Ed Elson?

  Is that what you think about when you come out of that meeting? I mean, I, we've all ha, we've all been there. We've all been in that situation where you're on the spot. You have to perform and you just can't do it. You lose your cool, you lose your nerves. Um, what did you say to yourself coming out of that meeting? Was it an immediate whatever, keep moving?

• 40:25Speaker 02

  No.

• 40:28Ed Elson?

  In retrospect, I dust myself off.

• 40:30Speaker 02

  No, I was so upset with myself, but you dust yourself off and you turn back up.

• 40:38Ed Elson?

  Yeah.

• 40:38Speaker 02

  And you keep working hard. And what I know myself now is that now I am the boss at the firm. You know, when the young folks talk in the Monday morning meeting or in investment committee or whatnot, they're often pretty nervous the first few times they do it. And I'm sure they're thinking to themselves, oh, my goodness. Like, I'm coming across nervous and I really hate this. And so a lot of people won't talk because they don't want to come across nervous. They'll hold back until they feel that they're confident. And I always have a really soft spot and an understanding for those who do speak up and are nervous the first time.

• 41:18Ed Elson?

  Hundred percent.

• 41:19Speaker 02

  And because I know that by time 10, you know, they're going to be quite, they're going to build up their confidence over time. And so, sure, they may have had a couple of times where they felt a little bit embarrassed or humiliated or whatnot. But guess what? They're the ones in a year's time who are going to be that much better because they took the leap.

• 41:40Ed Elson?

  I respect it when someone's talking and their voice is shaking and you know they're kind of, they feel the anxiety. I look at that personally when I'm in meetings, if ever I see that, I think, good on you. Like, that's exactly what you should be doing.

• 41:54Speaker 02

  I couldn't agree more. I couldn't agree more. They're putting themselves out there and they're going to be better for it. And guess what? You've got to go through that, okay? Go through it early in your career because you're going to go through it at some point. And it just, it advances you so much quicker than if you don't. And I can tell you now that, you know, what do I care about from my analysts? I care that they're doing their, you know, analysis correctly, they're serious about the job. That's what I, they're working hard. That's what I care about. They speak in a Monday morning meeting or an investment committee meeting and they, you know, I can tell they've just spoken in order to try and get themselves used to speaking.

• 42:37Speaker 02

  And maybe it's not the greatest point or maybe it's a bit nervously said, I'm exactly like you. I'm like, good for you. Good for you.

• 42:45Ed Elson?

  We'll be right back.

• 42:56Scott Galloway?

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• 44:08Ed Elson?

  We're back with first-time founders. Let's quickly go over how you turn, switch out from Blackstone and you create Stone Peak because this is the founders show.

• 44:19Speaker 02

  So, so, we've been at Blackstone two years, haven't raised a dime. You know, it's been, it's been directly corresponding with the global financial crisis, but every investor under the sun.

• 44:29Ed Elson?

  Yeah.

• 44:30Speaker 02

  So, we turn up the first day of 2011, first day at work of 2011. Those of you in New York might remember that was a hell of a snowstorm year, that time of year. And Tony James, who's running Blackstone at that time.

• 44:54Speaker 02

  Says to me, Mike, and by the way, I was quite close, I still am, I was close to Tony. He'd been a mentor of mine, he'd been amazing.

• 45:02Speaker 02

  He said to me, Mike, it's, we're not doing this, you know, we've been out too long. We're about to go out and raise some other funds that are going to be hitting the same investors. We don't want to be marketing into those investors with multiple products. It's all over. Tell me what you want to do. So, you know, that was the only time in that whole journey where I thought, hang on, maybe this is not going to happen. And I spoke to Trent and we came back the next day and said, you know, screw this, let's do it ourself. We said, rather than just repeat what we did and go and see a whole bunch of investors, let's find a partner. So we went and found a pension fund partner to be our anchor and we gave them some special economics in the firm

• 45:41Speaker 02

  as part of that. So we had an anchor who, who, um, which is T I A Creff, which is a well-known uh, insurance company pension fund. They committed four hundred million dollars to us. They gave us a couple of million dollars of working capital. Trent and I put in a couple of million dollars of working capital for that. T I A Creff got a profit share in the business for the first couple of years, not a permanent equity, but a profit share in the business. And then we just went and visited investors again. And the, the difference was versus our time at Blackstone, firstly, the economy had picked up, you know, we were now

• 46:23Speaker 02

  two and a half, three years out of the global financial crisis. So people started to have money to invest again, firstly. Secondly, we'd met all these investors before. And one thing that struck me is that

• 46:36Speaker 02

  it's, it's interesting. You can go and meet someone once. And if you then see them again two years later, even though you've only met them once before, it's such a difference compared to if you haven't met them before. They remember you and there's something, there's some sense of consistency. Uh, about it. And so between those two things, we were just able to be successful.

• 46:58Ed Elson?

  Yeah.

• 46:58Speaker 02

  That second time um around. But the big thing for me was, I've still got this, my first paycheck. The first time I ever got paid from Stone Peak, I've got it framed on my.

• 47:08Ed Elson?

  Hmm.

• 47:09Speaker 02

  Wall. It felt amazing to me to have this business we started.

• 47:13Ed Elson?

  Yeah.

• 47:13Speaker 02

  That was now paying us. It felt absolutely amazing.

• 47:16Ed Elson?

  Hundred percent.

• 47:17Speaker 02

  So our, our first product was a one point six billion dollar US focused infrastructure product.

• 47:26Ed Elson?

  Yeah.

• 47:27Speaker 02

  Um, and then over time, we grew that product to now, uh. It must be around twenty five billion dollars is in that particular uh product or platform. We've now turned into, into a global uh firm.

• 47:43Ed Elson?

  We've talked a lot, and I think it's, we've learned a lot about how to excel in your career. And, you know, we talked about putting yourself out there, uh, taking risks, going in the deep end. How to succeed as a, I think this is a lot of very useful advice for anyone who's just trying to be successful in their career. But we haven't talked much about the fact that you are a prolific investor. From my understanding, you never lost money on an investment ever with Stone Peak. What does it take to be a great investor? Um, how, what is your investment strategy? And how, what can we learn about investing from you?

• 48:27Speaker 02

  So firstly, I'm very fortunate that we invest in a asset class that is um. So predictable.

• 48:37Ed Elson?

  Yeah.

• 48:37Speaker 02

  Okay. And not, not, look, not to, not to underestimate or understate the risks. You know, we, we're investing in equity. There's risk there, things can go wrong for sure. But investing in a electric utility or an airport or a cellphone tower business, um, it is so much more predictable and therefore easy to understand relative to, um, if you asked me to go into one of these tech businesses, like you, if you said to me, go and value open AI to take, you know, something on the frontier of tech, I wouldn't know where to start.

• 49:13Ed Elson?

  Yeah.

• 49:14Speaker 02

  I wouldn't know where to start and I don't think.

• 49:16Ed Elson?

  And I don't think anyone knows, right? I mean, these are completely speculative and, and, and people look, I mean, I think opening eyes probably big enough and predictable, maybe enough where you can make some, some, uh, informed predictions, but in early VC, I mean.

• 49:34Speaker 02

  Yeah, the, the spread of outcomes is enormous, maybe is what, what we're saying, whereas for a, uh, one of these infrastructure businesses, the spread of outcomes is much narrower.

• 49:44Ed Elson?

  Yeah.

• 49:44Speaker 02

  And so as a consequence of that, when I sit down and I, uh, uh, I say, I'm in Stone Peak, when we sit down and we project out the cash flows of one of these businesses, we can do a pretty good job of saying, what's a realistic worst case? Okay. And we might be wrong, like it might be a P ninety five, I'm making that up a little bit, meaning that ninety five percent of the time we'll do better, but maybe there's a five percent outcome that's worse. So, um, but you're doing a pretty good job of what's my worst case cash flow projection here. And then you can roll that back and say, well, given that, what can we pay for this business? And still get our money back if we get this worst case outcome.

• 50:27Speaker 02

  And so that I think is somewhat unique within equity investing. It's somewhat unique to the infrastructure asset class.

• 50:37Ed Elson?

  I also think that it is unique for young people who a lot of people think that if you want to be a billionaire mega successful investor, you've got to be taking these crazy risky bets. You've got to be going into crypto and you've got to be going into tech and, and I think. What I would like to understand is like, uh, where is the alpha in your investing strategy? If you're looking at businesses where you can kind of just predict, okay, these are the cash flows. Then how do you, how do you outperform?

• 51:17Ed Elson?

  Where is the upside risk that, that allows you to get these crazy good returns?

• 51:21Speaker 02

  It's the power of compounding is what it is. And, you know, I, I, um, I'll give you a great, um, example. So Warren Buffett, I think undoubtedly the greatest investor.

• 51:36Ed Elson?

  I was gonna ask if you are a value, you seem very much like a value investor and a Buffett fan. I'm a huge Buffett fan. I'm, I'm, I'm glad to hear it. Okay.

• 51:45Speaker 02

  He's, he's amazing. He's, he's, he, he keeps saying you don't need a high IQ to be a, a great investor. But I'm telling you, his IQ must be off the charts, in my opinion. But take, so Coca-Cola is maybe his most famous investment of all time, arguably. Okay. Maybe in terms of a long time thing he's owned. Now, that's not infrastructure, but it's got the, um, moat that we talk about that's so important. Uh, it's, it's a brand moat in the case of Coca-Cola, different from say, you know, the moats I'm talking about around an airport or a toll road. But same, same concept. So Coca-Cola, which was so successful for him. So he put something like 1.3 billion dollars into Coca-Cola back in 1989, 1990.

• 52:29Speaker 02

  And so far, um, if you include the value of all the dividends and the shares today, he's got about 35 billion dollars out of that investment. So that's obviously spectacular, but if you talk about that from a return standpoint, it's about a 13% return since 1989.

• 52:52Speaker 02

  And that's the power of compounding. Like thirteen doesn't sound all that exciting. I may have that number slightly wrong, but it's twelve, thirteen, fourteen, something in that, in that range. But when you compound it thirteen percent for whatever that is, like thirty five years, pretty remarkable things Yes. happen. And so when you look at Buffett's portfolio today, his two biggest exposures are, um, his biggest exposure is the BNSF Railroad, which is the biggest railroad in the US, classic infrastructure asset, something we tried to buy when I was at Macquarie.

• 53:34Speaker 02

  Um, and his second biggest exposure is Berkshire Energy, which is a whole bunch of different, mostly electric utilities, but electric and gas utilities around the US. So Buffett's two biggest exposures are infrastructure assets because, you know, I don't know exactly what he expects to get return wise out of those. But if I had to sort of make an educated guess at it, I bet he thinks he's getting a thirteen, fourteen, fifteen, but he's getting that thirteen, fourteen, fifteen over twenty, thirty, forty years because he knows that BNSF, like regardless of what happens with AI or whatnot, BNSF, the railroad is going to be around

• 54:19Speaker 02

  in twenty years, thirty years' time. Yeah. All these electric utilities, like they're only getting more important uh over time. So Buffett's choosing assets where he's got this great saying, something like, he wants to know that he can go away for ten years and come back and this business is still going to be there. He's going to feel good about his investment. That's the, um. That's the magic.

• 54:45Ed Elson?

  Yes.

• 54:45Speaker 02

  Of this infrastructure asset class. And so, you know, how do you outperform? Well, candidly, the best way to invest is just to find something at a price you like that's gonna compound. That's the best way, I think, to invest, which is what infrastructure offers to you. Now, the other nice thing about these infrastructure assets is that because they do have natural moats around them, they can be poorly managed, but they'll still survive. So in a normal business, if you manage it poorly, the better management teams, the better businesses will drive you out of business.

• 55:20Ed Elson?

  Yes.

• 55:21Speaker 02

  But, I mean, you've been to JFK Airport, I mean, it's, it's, it's a disaster.

• 55:26Ed Elson?

  It's a mess.

• 55:27Speaker 02

  You know, but it's still there, you know?

• 55:29Ed Elson?

  Yes, I still use it regularly.

• 55:31Speaker 02

  Okay. And so, one of the beauties then is that often, when you buy these businesses, you find that they are under managed because you'll survive, even if you manage it poorly. So not always, like, there's a lot of businesses we bought where we just love the management and, you know, you sit on the board and you offer your two cents worth along the way, but you don't have much to add. There are other businesses where, in fact, we can see that there's all sorts of levers we can pull to improve the operations.

• 56:02Ed Elson?

  Yeah.

• 56:02Speaker 02

  Of those businesses. So it really lends itself in certain instances to a lot of operational outperformance as well.

• 56:10Ed Elson?

  It's very rooted in first principles, I think, because, you know, there's, I think, Y Combinator's slogan is make, make stuff people want. And I think that's true of investing too. You wanna invest in stuff that people actually want. It's a very simple concept. And then it's, there's also, there's a layer beneath that, which is you wanna invest in stuff that people actually need. And it's just indisputable. And I feel like that's sort of what you've done here. And it's a very simple concept, but I feel like with investing, it becomes so convoluted to the point where we're, we're trying to make up reasons why this investment is gonna be needed in the lives of everyday people. You need,

• 56:53Ed Elson?

  you need this strange derivative financial product here because, you know, there's this strange loophole in this regulatory system, but you know, whatever it is.

• 57:05Ed Elson?

  And often I just think about it, do you actually need, do people really need that? Is that really going to last for 10, 20, 30 years? People are always going to need that. And you look at an airport, people need to fly. It's just, it's not a question. And if you can figure out a way to get into that investment and to get in, as you say, at a good price and let that compound for 20, 30 years. I mean, I guess the proof is in the pudding. You're right here. You've had massive success doing that. I want to start to wrap up, but I wanted to ask you about negotiation because, you know, we've covered the kinds of investments you want to get into, the power of compounding.

• 57:49Ed Elson?

  But then the other piece of it is that can you get it for a good price? And that is all a game of negotiation. And I would imagine that you have sort of mastered the art of negotiation over the years.

• 58:02Speaker 02

  I think it's more a game of strategy.

• 58:04Ed Elson?

  Okay.

• 58:05Speaker 02

  In the sense that, look, you could be the best negotiator on the planet. But if five different people want that same asset that you want, who cares?

• 58:13Ed Elson?

  Right.

• 58:13Speaker 02

  You know, probably the worst negotiator will win the asset in that sense. You know, the highest person who will pay the highest price will win the asset. So, look, it's, it's a, we're not the only ones who know this is a really interesting asset class. And so you've got to be strategically clever about where you find these assets. Because if you're turning up on the same asset at the same time as three other folks are turning up, all of us have money, it doesn't matter what your negotiation talent is like. And so it's all about finding situations where there's an owner of an asset who has.

• 58:58Speaker 02

  Ideally, some sort of pressure on them.

• 59:00Ed Elson?

  Yeah.

• 59:01Speaker 02

  It might be a balance sheet pressure, a liquidity pressure.

• 59:06Speaker 02

  Maybe it's a business that wants to buy something else. And so it needs to dispose of something in a certain time period, in a quick time period. And so you can take advantage of your ability to move quickly. It might be a partnership where a partnership is usually so bespoke. You can't go and run an auction process around a partnership. You've got to bring someone in and negotiate this bespoke partnership. It may be a type of asset that has all these infrastructure characteristics, but it hasn't really been identified before. So a great example of that is we own the largest cold storage network in the U S.

• 59:47Speaker 02

  So thirty percent of food in the U S goes through our cold storage.

• 59:53Ed Elson?

  Wow.

• 59:54Speaker 02

  Network. We were probably, I think, the first infrastructure business to go and identify cold storage as one of these categories of essential, you know, underlying infrastructure.

• 1:00:09Ed Elson?

  Yeah.

• 1:00:10Speaker 02

  Assets. So it's finding circumstances where the balance of power is with the.

• 1:00:17Ed Elson?

  Yes.

• 1:00:18Speaker 02

  Person with the money as opposed to the person with the asset.

• 1:00:22Ed Elson?

  Right.

• 1:00:23Speaker 02

  Now, when interest rates are one percent, it's pretty hard because money's almost free. When interest rates are higher, like they are today, much more interesting because money's expensive. And so the person with the money has more negotiating leverage, perhaps, than they certainly do in a lower interest rate environment.

• 1:00:44Ed Elson?

  Yeah, we often talk about you want to look for forced sellers, people who they need to sell as for any of the various reasons that you just highlight there. That's when you're going to get a great price.

• 1:00:59Ed Elson?

  Is there any advice that you would give to young people who want to get into investing right now? Possibly someone who maybe wants to start their own fund. I feel like. It's not as much of a thing anymore. Young people going out and starting their own funds, probably because of competition. You know, the people who are starting companies these days, they're starting tech companies. They're not starting investment firms or asset management firms. So what would be your advice to a young person starting on their career, wants to get into investing? And also maybe they want to start their own investment firm?

• 1:01:37Speaker 02

  So my younger brother, who's now in the US, came over from Australia. He grew up in advertising, okay? He was in radio. He's like a smart ass and he writes jingles for advertising. And he got to the US, wanted to change careers. And so he teamed up with a guy in Austin, Texas. Two young guys, like my brother's forty, his partner is thirty, something like that. And they saw an opportunity to go and buy pool cleaning businesses. Literally the folks who go and scoop the leaves out of your pool.

• 1:02:19Speaker 02

  And the reason that was interesting is that you can buy those businesses for low cash flow multiples. And there's a huge network effect. Like if you own a lot of those businesses, the trip time between one customer to the next is so much shorter than if you're a one man band, sort of, you know, going all across town from one pool to the other. And so what they did is they literally went around Austin to golf clubs and other places and Houston and family offices and whatnot. So again, my brother's got zero business experience at all. His business partner had been a CFO or something like that in a private equity startup portfolio.

• 1:03:04Speaker 02

  Companies had a little bit of business experience. But a little bit to our earlier conversation about just jumping in. They went around and they had a business plan and they started to line up businesses to buy. Now, these pool businesses are pretty small. You know, five million bucks here, two million bucks there, ten million bucks there. They lined up these acquisitions. And they went around and said to just high net worth individuals, hey, this is what we're doing, would you invest with us? And they managed to uh pull together thirty million dollars of high net worth money and they went and bought thirty million dollars worth of pool cleaning businesses.

• 1:03:46Speaker 02

  They then marked that up to a hundred million dollars and they went and raised another round at a hundred million dollars. Um then they went and did the same thing for HVAC services businesses. So the person who comes and fixes your air conditioning or fixes your heater, um they did the same thing for that. And now they're going out and raising a private equity fund. So I've seen it in action and I think that the, you know, if I had to summarize that, it's identifying a little business niche that you think is interesting to go and buy and and and lining up some deals and then going and lining up some money. People love to see deals. If people see deals.

• 1:04:29Ed Elson?

  Yeah.

• 1:04:30Speaker 02

  They tend to uh be willing to turn up with with with with money. Um so there's a real life example of a person who really from a standing start is now sitting on a couple hundred million dollars of capital under management and uh I think is well positioned to go and start an investment firm.

• 1:04:50Ed Elson?

  Yeah.

• 1:04:50Speaker 02

  Uh from that.

• 1:04:51Ed Elson?

  Final question from me. Um who are your role models? Is there anyone in business or in life who you really look up to and who you've tried to sort of emulate?

• 1:05:02Speaker 02

  We mentioned it earlier. I think Buffett is far and away the best investor I've ever seen. I can't recommend highly enough for folks just to go and read his letters. You know, go and buy a book. Uh I mean, there's a great book out there with it literally just has all his annual letters. It's so interesting to read. From, I forget his first annual letter might have been in the late sixties. Um, I've read every one of those letters from the late sixties through to today. It's the best business investing, learning you will ever get. So in that sense, I, I take, he's probably the investor that I've tried to learn the most from. Now, I think he's so special, you could never emulate him, but, but I've tried to learn the most from him.

• 1:05:45Speaker 02

  I learned a lot from Steve at Blackstone. I learned a lot from Tony James, uh, at Blackstone. I had a boss at Macquarie, uh, Murray Bleach, who was the person who just threw me into the, you know, to the deep end. I learned a lot, uh, from him. Um, Nicholas Moore, who ran Macquarie and really established infrastructure as an asset class. I mean, he trained a whole generation, several generations of, of, of infrastructure, investors and entrepreneurs. Um, so I've been very fortunate to be at,

• 1:06:19Speaker 02

  really two of the greatest, I think, financial institutions on the planet between Macquarie and Blackstone. And there's just, there's just so many, um, folks within those firms that I've taken a lot, uh, away from.

• 1:06:33Ed Elson?

  Uh, well, we've learned a lot, um, in this episode. I, I would, I'd love to keep going, but we, we should probably wrap it up. Um, thank you so much for joining. Mike Dorrell is the founder and CEO of Stone Pete. Mike, thank you so much.

• 1:06:48Speaker 02

  Thank you, Rick. I appreciate it.

• 1:06:50Ed Elson?

  Appreciate it.

• 1:06:55Ed Elson?

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our research associate is Dan Shalane. Thank you for listening to First Time Founders from the Vox Media Podcast Network. We'll see you next month for another Founder's Story.

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