PEI: How has your LP base changed over time?
Hill: In the early days they were fewer in number and capital commitments were smaller, and to the extent that they were looking for exposure to energy, it was for income or as an inflation hedge. But in the 1990s, investors started to recognise the virtues of industry-specific funds. Since then there’s been a huge growth in the number of LPs who will look at industry-specific as opposed to generalist funds.
Second, the size of the tickets has grown. When we got a $25 million commitment from a major institutional investors in the early 1990s, we had a big party. Today we receive $250 million or $400 million tickets.
The other thing that’s become more important is co-investment. In the 1990s, nobody talked about co-investment. In the first half of the 2000s, a lot of people would talk about it but very few did it. Today, we have a lot of investors who really want to co-invest.
How has the firm developed and institutionalised over the last 30 years?
In the early days it was just five of us sitting around, doing our own diligence on legal pads and HP calculators. Today it’s vastly different: we have 75 investment professionals across four offices, plus another 90 or so doing all the related work.
We have found that technology has been enormously helpful: we have all these high-powered computers so our young whizz-kids can build models for the investments we’re looking at and every Monday morning we have a firm wide meeting via videoconference.
We’ve also really focused on human resources. We recruit every year out of business schools and investment banks to make sure we develop talent from a young age; take Alex Krueger in our London office, who’s just been made president: he’s been with us 14 years, he’s really home-grown. And we’ve been hiring an increasing number of staff from the industry itself: geologists, engineers, and people with a strong background in management.
Looking back at all the deals you’ve done, do you have any particular favourites?
Every now and then you help to build a company that you’d like to own forever. Take National Oilwell: we bought that company for a modest amount of money from US Steel in the 1980s. Today it’s a $30 billion company (market capitalization). I wish I still owned every share of the company. Same with Weatherford International, Dresser-Rand, Acteon… I would love to own all of those companies still.
Asia’s been a big focus for you lately. Do you expect to deploy a greater proportion of your capital there in the near term?
I think so. 10 years ago, 75 percent of our investments were inside the US, although some companies operated outside the US. Today, it’s probably been the reverse: more than 50 percent of our investments were domiciled outside the US. I think over the next three to five years, Asia represents probably one of our greatest opportunities – not just China but also Vietnam, Taiwan, Cambodia and Indonesia.
And how do you expect the firm to change internally?
I don’t see any major expansion in staff or office footprint. I think we’ve got the long term succession plan in place, with the appointment of Alex as President and the rest of the senior leadership team. And we have taken care of the ownership issue: we’ve structured a deal where the ownership is being transferred from the founders to the people who we hope are going to be here for the next 20-30 years. Although Bill and I plan to be around a long time, because we’re having too much fun.