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On BDO’s new Private Equity PErspectives podcast episode, Nick Santhanam, CEO of Fernweh Group, and Scott Spielvogel, co-founder and managing partner of One Rock Capital Partners, join host Todd Kinney to discuss:

• Investment strategies: How the changing market has evolved the way fund managers are investing (or not)
• Impact of current economy: How inflation and higher interest rates are affecting the approach to value creation and financing
• Influence of social and environmental concerns: How the pressures of social equity and climate-related demand are influencing human capital and investment decision making

Transcript:

TODD

Hello, and welcome to BDO's Private Equity PErspectives podcast, where we explore the trends impacting private equity today. I'm Todd Kinney, national relationship director in BDO's private equity practice and I’m based here in New York City.

Joining me today on the show, we have Nick Santhanam, CEO of Fernweh Group, and Scott Spielvogel, Co-Founder and Managing Partner of One Rock Capital Partners.

We're going to cover a lot today, including investment strategies, the current market, how they're responding to economic volatility, talent changes, and value creation.

Just a quick reminder that the remarks and opinions of our guests do not necessarily represent BDO's views.

So with that, Nick, you were formerly at McKinsey where you led the global industrials practice, but you also have a Master's in chemical engineering and an MBA from Wharton. So perhaps you can kick things off by sharing your journey to Fernweh and what your firm invests in within the industrial and industrial tech sectors.

NICK

Thank you, Todd. Thanks for having me. And it's a great question. I'm sure you were wondering, and I'm pretty sure a lot of the listeners are wondering, chemical engineering, manufacturing to consulting to private equity—did I hear it right? Did these guys pull this off? Is it even possible? And the short answer is, we did pull this off.

Fernweh is not a private equity firm. We are an investment company. But we adopt slightly a different model where we believe combining operational domain expertise, transformational expertise, creates alpha. We believe growth is the oxygen in everything we do, and so we go in and adopt what's called an EIOM model, Engaged Investor Operator Model, and we only go into the space, even within the industry of space, which we really understand well. And we go in, and we leverage our expertise to drive growth, and that's where we go and focus on creating value. So that is our background. That's how we got started.

And the reason we got started is myself and a bunch of my colleagues who launched Fernweh a couple of years are ex-McKinsey guys, former clients of mine. And we found that there's a lot of value to be created when we put these ingredients together. And selfishly, we said, "Hey, we can do this at McKinsey, or we can do this for ourselves. Why not do this for ourselves?" Sorry, long answer to your short question, Todd.

TODD

Well, thanks, Nick. And I'll give a special shout-out to my M&A tax guru colleague, Stephen Sonenshine who connected us. He promised me you'd be a great guest. So, no pressure, Nick.

NICK

The pressure only builds on more, Todd.

TODD

All right. So, Scott, you've been in the private equity space for a couple of decades, and you co-founded One Rock Capital Partners and are a managing partner there. So perhaps you can talk a bit about your path and the types of investments One Rock makes. I can certainly see your industry focus makes for an eclectic portfolio.

SCOTT

Yeah. Thanks, Todd. And thanks for having me on the program. So One Rock is a buyout firm. We're investing across four sectors of what we like to call the real economy: chemicals, manufacturing, food and beverage products, and then business and environmental services. That's what we focus on exclusively. And within those areas, we focus on the ugly, complex deals where we can buy a company at a really sharp price. The idea is that we buy it cheaply, we fix the problems that come along with those companies, and then sell the company in a more fully priced valuation.

About half of our deals—just to give you a sense of the kinds of things that we like to take on—about half of our deals since inception have been complex corporate carve-outs. We've been around since 2010. My partner, Tony Lee, and myself are the two co-founders. We're longtime friends, we were rugby teammates in college going back to the early '90s, so we've known each other quite a long time now. And before forming One Rock, Tony and I worked together at a firm called Ripplewood Holdings, and we had the opportunity to spin out together, and over the years, we've been lucky enough to have many Ripplewood alums join our team.

Today, we're about $5 billion in AUM. We have offices in New York, L.A., and London. We have a team of roughly 90 people, and that includes 24 full-time operating partners who have either industry expertise or functional expertise who work with us to add value to the businesses that we buy, helping fix the problems that we inherit with the businesses that we buy, which enables us to sell a cleaner business once we're done with that improvement process.

TODD

Gotcha. Well, thanks. Very impressive background, to say the least, and I’m thrilled to have you on the podcast, as well.

So I’d like to set the context a bit for our conversation, in terms of how you see the landscape changing. You both participate in the industrial space, as you've mentioned. What would you say has been the most significant change in the last few years? And I guess the second part of that, how does this extrapolate to the greater macroeconomic forces we've been experiencing?

Nick, why don't you kick us off here?

NICK

Thanks, Todd. As I mentioned, I was at McKinsey for another 20 years, and when we were there, we wrote a book called The Titanium Economy, and it focused exclusively on the industrial sector. And we said, "Look, this is a sector, which is misunderstood, undervalued, and unappreciated." And I genuinely believe all those elements are true. And none of that has changed in the last two decades. And I think in the last few years since COVID, it's probably changed a little bit, but this is a great sector which creates a lot of value and, as Scott said, they make real products, creates a lot of value for all its stakeholders, not only shareholders, but it's never got the limelight.

I mean, as jokingly, one of my CEOs say, "We are in the basement while the party happens in the penthouse." And I think the only real change is in the last few years, people are like, "Huh, I do know these guys in the basement." Because usually, you only know the people in the party. But I do think that awareness is going up. But as I look at the sector, it is a resilient sector. It's an unbelievably value-adding sector, and it's going to continue to be important. And I don't think that has changed. I don't think that will change. And especially in the last few years—and again, it is not a political debate whether onshoring is coming back or—you are going to find more manufacturing, more industrial production in the U.S. And I think the sector is going to become even more important.

Scott, you've been doing this for quite a longer time than I have, would you agree? What do you think?

SCOTT

Oh, I totally agree, Nick. I think those of us that have focused on the industrial sector for a long period of time, it's been the unsexy area for investing. The sexier areas have been tech and healthcare and some of the higher growth areas. But the one thing that you noted, which we felt very acutely is that supply chain uncertainty has caused quite significant changes in the way industrial companies operate on a worldwide basis. And for all the challenges that those disruptions have created, in many ways, we've seen it via tailwind for some of our portfolio companies. Our manufacturing plants operate primarily in North America and Europe, and we have businesses that are primarily serving the North American and European markets. And it used to be the case many years ago that a very common private equity playbook would be to buy a business that is operating in the West. And try to figure out a strategy that involves somehow moving the manufacturing to places like China. And we started to see that tide turn around 7 years ago with the increasing geopolitical tension between China and the Western world. We also saw wages start to rise in China, sort of narrowing the gap that provided that arbitrage, historically. And then supply chains started to disrupt when we saw that the ports were backed up on the West Coast of the U.S. several years ago.

And then, to your point, Nick, obviously during COVID, there was widespread supply chain challenges worldwide. And although supply chains are much healthier today than they were during the height of COVID, there are ongoing uncertainties like what's happening in Eastern Europe given the Russia-Ukraine situation. And all of a sudden, the ability to manufacture in the West, providing supply chain certainty for your customers, is at a premium.

And so some of our companies have been the beneficiary of being that local solution for customers looking to shorten their supply chains. And it's provided opportunities for us as we look to grow the top line of our portfolio companies that sometimes requires additional CapEx for more capacity. But if our customers are motivated enough to sign up to medium to long-term contracts to lock in that supply, that's the kind of thing that can provide some really nice growth avenues for businesses that, in the industrial area, really haven't grown at anything greater than GDP-type rates.

TODD

Right. Well, I certainly appreciate the insight from both of you. As I'm taking notes along the way, your areas of focus are ugly, complex, unsexy, basement versus penthouse. It's nice to have both of you on here. I don't think we've had two guests quite like this. So I know there's going to be a lot of good conversation. I guess as a follow-up, I would ask both of you, how would you say your investment strategies have evolved as a result of these changes? Are you shifting investment strategies in terms of sectors, company size, or fundamentals, or are you just staying the course? And if so, maybe talk about how you're able to do that.

Scott, I'll throw this one to you first.

SCOTT

We at One Rock are largely staying the course. Our approach to investment has not materially changed since inception. We believe that our approach works in pretty much any economic environment. And when I take a step back and think about what we think about when our investment committee convenes, we're looking for three primary attributes that make a situation a One Rock investment. Number one, it's an inherently well-positioned business in its sector. So it's a leader in either market share or technology, brand, something that provides a selling point when we go to sell the business. Number two, it's improvable under our ownership period. So we've got to be able to go in and fix the problems that are associated with that particular business. And number three is that it's available at the right valuation. For us, that equates to a fairly nice discount relative to what a clean business would trade for in that sector.

And our strategy is pretty agnostic as to size. So whether it's small deals or larger deals, there's nothing that says that our approach is relevant to one situation versus the other. And one of the things that has happened more recently, given the disruption in the credit markets, is that there's been a little bit of reluctance for certain sellers of businesses to really meet the asking prices of buyers out there.

And so we've tried to focus our attention on situations where there's a motivated seller. And for us, that means homing in on places like corporate carve-outs. Those tend to be situations where the parent company has made some kind of strategic decision to shed an asset. And oftentimes, they need to do it for reasons other than needing to maximize proceeds. They've either made a corporate strategic direction decision, which means that they need to divest an asset that's dilutive to their growth story or dilutive to their margin story. And they're focused more on getting the deal done rather than squeezing every last dollar of price out of a buyer.

I’m wondering, Nick, if that’s what you’re seeing, as well?

NICK

Scott, I think you did an amazing job of articulating how we also think. We have a very similar model. We don’t change our strategy. I mean, we obviously change our strategy if something has fundamentally changed. But we don’t believe anything has fundamentally changed. Our philosophy is very much simpler, I would say. Obviously, we would get out of an asset if we believe we’re not the right owners. But we also don’t get into an asset expecting it to sell. So we don’t have a window to say we’re going to exit an asset in three years or -four years or five years. And so we take a longer-term view, Scott, in a sense. We sort of say, “Look, there are only two things we bet on,” which is, we bet on people, and we bet on ourselves. And when I say we bet on ourselves is, we really need to understand that sector really well. We know where the bodies are buried. Very similar to your point of view, we say, "Hey, look, is this something we believe we can create value?" If this is dependent on a government subsidy, or if it's dependent on a flavor of the month, we don't go into that because we don't control that. But if this is something we believe we can go and drive growth because it's a brand which has been around for 100 years, it's a good, secular trend, which is going to drive growth. If you look at two of our portfolio companies, one is in aviation infrastructure, and one is in the energy infrastructure because our premise is there are 7 billion people on this earth, and they're going to travel.

Similarly, at least in my lifetime, electricity is going to be the way electricity is going to be: It's going to be carried on a grid. There will be different types of transportation, there will be different types of energy, but they all have to move through that infrastructure, and we buy those assets. As I jokingly say, we are the idiots who like to run into the fire rather than run away from the fire. So we go in, which is very similar to your model, which is messy. But it's not messiness in the terms of the carload, it’s messiness in terms of what it takes to drive growth. So we are very big on leveraging AI and digital to drive growth. We have a subsidiary or a portfolio company called Ayna.AI. That's all it does. And so we leverage them to really figure out how do we put them in to drive growth. And I don't think that has changed. So in a sense, I would say the opportunities we look [for] are very similar.

The one thing I would say—and Scott, you briefly touched on it, but I think it's very important to bring up—is in the last few months or quarters, I think there's a big reset in the selling price just because interest rates are up, risk is high. But unfortunately, the seller sentiment has not changed. So the bid-ask spread is pretty hard, or pretty wide, and it's going to be hard to close. But I do think that's probably the one change I've seen, but over time, that always works out. But that's something we, as buyers, will have to live with. And if you're a seller, you sort of have tuned into what you did a couple of years ago is probably not going to work now.

TODD

Yeah. Wow. Great. Great responses from both of you. I love the secret sauce that you're sharing. Having covered hundreds of PE firms over the years, it always seems best to stay the course, for sure. And I'm sure your LPs appreciate that, as well. So moving on, to what extent are inflation and higher interest rates affecting your approach? I guess both in terms of value creation as well as financing. And Nick, I'll start with you on this one.

NICK

So Todd, I always say you're going to live in the world of the two I's: inflation and interest rates. As much as I loved 1%, 2% interest, inflation, and almost zero cost of capital, I don't believe it's coming back. I hope it does. But I don't think it's coming back. The days of 2% inflation are gone. I would love the Federal Reserve to keep saying they're going to bring it down. But in all of our models, we have just assumed you're going to live in a period of 4–5%inflation. I grew up in India; 4–5%inflation is not bad. It's not hyperinflation. I mean, media acts as if 4–5% is really, really bad, [but] 4–5%is not. I mean, again, I like low inflation, but that's a thing of the past.

Similarly, you are going to live in a Fed funds rate of 4–5%. I mean, it might come down to 2–3%, really, really low end. But I don’t think it’s going to go back to what you and I saw the last 20 years. And so when we built Fernweh, we sort of built with that model which is high inflation, or what we call high inflation, but higher inflation and higher interest is here to stay. So in our strategy, we don't do any private credit. We do only bank debt. We only lever up max of three times. We write a bigger equity check, which means it really forces us to work really hard for our money. But, again, that’s worked very well.

Scott, I mean, I don't know what you see. But I would love to hear, is that similar to you? Or do you believe you're going to go back to the olden times, which I hope we do?

SCOTT

Yeah. I am not one for predicting what macro factors may affect our industry, I will say that on the inflation side, anybody that has been investing in the industrial space for any period of time, when you do due diligence on a business, you're always digging into what kinds of things would affect the profitability of a business and that includes doing a deep dive on what happens when raw material prices go up. Is there the ability for that company to pass through, or not, to customers that raw material price increase? And we try to comfort ourselves in the situations that we get involved with that there are mechanisms by which there is the ability to pass through those increased costs to customers. Sometimes it's contractual in the actual selling contracts with the company's customers, and sometimes it's just a standard practice to pass those costs on. And so that'll happen over cycles. Raw material prices go up. They go down. Usually, derivatives of some kind of key raw material, key commodity, the prices of which fluctuate over time.

What's more recently happened, though, is as we've seen sustained inflation, we've seen the cost of labor increase. And that's a little bit trickier and newer for a lot of companies to have to contend with. And we're actually seeing not only labor inflation, but a structural shortage of labor across a lot of swaths in the U.S. especially, mostly in the Midwest. And it's our belief that part of this has been caused by changes to the U.S. immigration policy that really came into effect around seven years ago, which made it harder for entry-level workers to enter the workforce. And then compound on top of that, of course, COVID also had an effect. It's widely reported that many folks have simply dropped out of the workforce, and they haven't returned. And so we find ourselves in a situation where it's a little bit different. There's a structural shortage. And under normal circumstances, if you have companies that have difficulty finding workers, you raise wages, and that's the mechanism by which you attract candidates, and you're able to fill your available positions. But unemployment in the U.S. has been stubbornly low. And even with rising wage levels, unemployment has been stubbornly low.

And we're still finding it difficult to fill these available positions. And perhaps it's gotten a little better over the past few months, and wage increases have moderated just a tad. But we're having to adjust pretty significantly within certain of our companies to figure out how to meet the demands of customers when labor is at a shortage. And that involves things like moving the manufacturing from one facility to another within a particular company's manufacturing footprint. So, for example, if we can't get labor in South Dakota, and we've got another plant in Texas where we can get more available workers, trying to figure out how to move that manufacturing down there. In other cases, we're having to figure out more creative solutions as to how to do with less labor, things like putting in more process automation. And our lean manufacturing operating team has been charged with solving labor problems that way from time to time. So it's a tricky issue that, until we do have some kind of recession, I don't see that changing at all.

TODD

Yeah. I'd agree there, Scott, definitely a tricky issue. And some really interesting points you both made, really, on kind of the labor and workforce challenges. I really see those as a pain point for many of our own PE clients during the diligence process. So a lot of good content there. Now, I'm going to hit a very brief pause on our conversation with Nick and Scott and turn it over to our coffee break guest, Liz Mack, who's going to talk about talent and workforce strategies in private equity. Take it away, Liz.

[Begin Coffee Break]

LIZ MACK

Thanks for having me, Todd, it's great to be here today. As Todd mentioned, I’m Liz Mack. I lead the Workforce in Transactions Practice at BDO, where my team and I perform financially focused due diligence on the workforce and then post-deal support of the PE fund’s pursuit of value creation and value capture opportunities.

When it comes to workforce and talent management, there’s a lot that PE firms need to get right. Compensation is the biggest top-line expense organizations have, so when you’re thinking, as a fund manager, about generating value, or reducing or optimizing costs, effective talent management should be a top priority.

Now, there’s are a lot of challenges built into how PE firms have traditionally approached talent. The traditional approach has been to hire external executive search firms to focus on finding the right people to fill C-level positions. What’s left on the table is everyone else, right? Everyone immediately below those executive officers all the way down to the most junior employee. Is the back office size correct? Is the company organized in a way that allows work product to flow optimally? It might sound like a prohibitively expensive undertaking to conduct a company-wide workforce assessment but there are actually ways to do it economically, which I’ll get to in a minute.

I’m going to talk primarily about two things that are most important for talent operating partners at PE firms, given today’s labor market: 1) aligning the deal thesis with stakeholders, and 2) understanding where an organization is in terms of its maturity.

A talent operating partner—and this role will vary slightly from fund to fund—generally has the goal to develop and execute talent strategies which will ultimately help the fund achieve its growth goals. Often, their top priority is making sure that the right leadership team and the board are in place at each portco. And if there are any leadership changes to make, the talent operating partner leads the search, which needs to take place both quickly and efficiently so changes can be made at close.

Assessing the current leadership team is a necessary step during diligence, but diligence can be a lot like speed dating to get married—it’s a whirlwind and you can find out only so much about the other person (or leadership team) and they often show the best version of themselves in order to secure the engagement ring (i.e., the deal signing). During diligence, most deal teams try to assess the individual leaders in addition to the business, and this is where the talent operating partner can play a really valuable role. More and more we see them turning to leadership assessments and diagnostics which try and learn more about the individual and then, “Minority Report”-style, try to predict how the executives will work with the deal team and other leaders.

So while this really sounds like a great step, it’s often insufficient, which is what we’ll get into next.

Once the team is in place, the talent operating partner works with deal teams on the leadership strategy alignment. This can be challenging because each deal thesis will vary. But it's a critical step. Not only is it important to align the leadership team to the deal thesis, but also to each other and to the fund. If each stakeholder has a different idea of their priorities and goals, it is much less likely that they will achieve excellence.

So while we see a lot of vendors out there doing leadership and individual executive assessments, we don't see much in the way of strategic alignment assessments of the stakeholders and the deal thesis. So because of that, we’ve actually partnered with a third party technology firm, which has developed a diagnostic tool to perform a rapid three-part process to:

Hold interviews to assess the goals of the key stakeholders

2. Provide a diagnostic to assess alignment and then

3. Provide a report and discussion workshop to align and talk about those areas of alignment and highlight opportunities.

Aligning the deal thesis with stakeholders helps ensure teams are on the same page and they’re all headed in the right direction. You’re capturing value here which ultimately leads to creating value.

Then, in speaking with some operating teams, there is an ongoing desire to quickly understand where the organization is from a maturity perspective so they can deploy resources to assist. If you know where you are, and you know where you want to be, you can figure out the path to get there. But you have to know those two endpoints. Very rarely will an organization need to be in the “differentiated” category across all the HR capabilities, but knowing what capabilities are just emerging and should be more robust, for example, is valuable information to have in order to achieve your goals, such as become an employer of choice.

We’ve developed a Rapid Maturity Assessment for the HR function, which is a quick assessment at the portco level which takes place right after deal signing. It does two really interesting things:

1. It helps organizations accurately take stock of their HR capabilities, and

2. It considers where an organization would like to be from a maturity perspective.

Once the portco HR leaders and their direct reports complete the assessment, we then hold a meeting to discuss the findings and agree on where they'd like to be. Then we can co-create the path forward to meet their goals and optimize that HR function. We've gotten so much feedback around how eye opening and helpful these workshops are. We were actually recently told by a serial acquirer client that we make doing deals fun again, which is definitely one of my favorite things to hear.

While I generally see search and alignment as priorities number one and two, most talent operating partners have other roles and responsibilities also. These can include talent development, including training systems, career pathing, and performance management systems.

Often, succession planning is an area which has been gaining interest largely because of the significant turnover other organizations have experienced in the last few years. And another area of responsibility we often see is culture building—for example, creating employee engagement programs, DEIA initiatives, etc.

With so many critical responsibilities, it seems initially surprising we don't see larger talent operating teams at the fund level. But even in mature practices we really don’t see a large HR operating team, which may just be consistent with how many PE firms have lean deal teams.

In practice, we continue to see challenges in coordination between deal teams, talent operating teams and portcos. The talent operating partner plays a critical role, and that role is evolving. We do see that talent operating partners are beginning to understand the value of a more holistic approach, one that connects the deal thesis and stakeholder alignment and stretches beyond the C-suite. Tools exist to do this. Having the transparency and data allows organizations to optimize costs, which ultimately trickles down to the bottom line and contributes to value creation.

[End Coffee Break]

TODD

Thanks, Liz. That dovetails nicely with what we've been talking about, vis-à-vis labor and workforce challenges.

Now, back to Nick and Scott. So, Scott, in the industries you operate in at One Rock, perhaps you can talk a bit about how the pressures of social equity and climate-related demands are influencing decision-making, both at the human capital and investment level.

SCOTT

Yeah. That's a really good question. I'll start at the One Rock level. At One Rock, we've been committed to a culture of inclusion since our very inception. One Rock's other founding partner, Tony Lee, my partner, he's Korean-American. And over 50% of our professionals at One Rock are either minority or female or both. And that includes 50% of our investment committee, as well. And I would say it's something that's happened quite organically. by having that culture of inclusion from the outset, it's what's resulted in the diverse organization that we have today.

On the climate change front, we recognize that at One Rock, we're investing in some of the more carbon-intensive industries. And so we know that we need to strive to be part of that climate change solution. We have a robust ESG process. Our head of ESG is part of our investment team at One Rock. She helps us screen investments in due diligence. this scorecard identifies hotspots that we need to get comfortable with, and it allows our investment committee and our deal team to start thinking about what are going to be some of the hot-button issues, and how do we start crafting a post-closing solution for those kinds of issues.

Once we own a company, we measure and report our portfolio companies’ carbon emissions. We do scope one and scope two measurements, and we try to figure out ways to set our companies on a path towards less carbon intensity over time. When a company is about to be bought by One Rock, it's our standard practice to have what we call an expectations meeting with the management team, usually happens between signing the deal and closing the deal. And at that meeting, we sit down with the management team, and we impress upon the company what it's like to be a One-Rock-owned company, and that includes a discussion around ESG, and what we view as the ESG value drivers that we will look to implement during our ownership period. We actually make a portion of our portfolio companies' executives variable compensation dependent upon the achievement of certain ESG targets.

But we're also using ESG as a way to improve the commercial prospects of our portfolio companies. We sit with our portfolio companies and coach them as to how to articulate their value proposition to their customers on how things like being the local supplier helps their customers achieve their customers' ESG goals. And so by having a shorter supply chain, that often means less carbon emissions throughout our customer supply chains, and that can be a benefit, as well. And so we're trying to use ESG as a way to competitively position our portfolio companies in a better way. Now, just to take a step back, having said all that, let me just clarify, One Rock -- we don't call ourselves an impact fund. However, we do believe that these kinds of ESG measures that we undertake can be value drivers for our company. So we don't believe you need to sacrifice returns for doing the right things from an ESG perspective.

TODD

Yeah. Well, Scott, I know I said it in some of our conversations leading up to the podcast, but I'm really incredibly impressed with how far ahead of the curve your firm is regarding ESG. I see a lot of firms, and while others are still trying to figure out high-level strategy or a basic plan of attack, One Rock is sitting here fully deployed down through all of your companies. Tying that variable exec comp to meeting ESG objectives is brilliant. So kudos to your team.

SCOTT

Thanks very much, Todd.

TODD

You got it. Okay, guys. Believe it or not, that brings us to our last question of the episode, and that is your outlook for the next 12 months. And trust me, this is a question I usually ask of most of our guests. So what do you see in your respective crystal balls for your own firm, for M&A in general, and lastly, the economy at large? Nick, I'm going to come to you, and then, we'll go over to Scott.

NICK

Todd, I wish I knew. If I did, I would be making a lot of money by buying the winning lottery ticket. No, look, seriously, I think if you read the public media, there is sort of the whole thing of we are in a state of flux. We sort of look at this and say, "You have to play for the long game." In the long game, I don't think—I mean, looking at the crystal ball—I think we'll continue to see the M&A, good deals come. Bad deals fall apart. We think the economy will continue to chug. We personally do not believe that a recession is going to happen. We believe responsible growth is going to happen. And as a firm, we are continuing to grow, we are continuing to invest, we're continuing to hire. So I'll do a sales pitch here if anybody is looking to join Fernweh: We would be delighted to have them join us. We're looking for great talent, and we continue to hire them.

So in that context, it's forward full steam ahead with caution, but that is the same thing I would have said five years ago. That will be the same thing I'll say five years from now.

Scott, over to you, would you sort of say you would be doing something differently or looking at it something differently?

SCOTT

Nick, it's a really good question. And if there's anything that I've learned over the last 25 years in private equity is that the future is uncertain, and I am a terrible predictor of what's going to happen from a macro perspective. I mean, I think back to early 2019, and I can't say that I know of anybody that was predicting that a pandemic would hit later that year and bring the world supply chains to a screeching halt.

So rather than try to predict the future, at One Rock, we just think it's important for our portfolio companies to be able to react quickly to whatever is thrown their way, whether it's higher interest rates or inflation or another pandemic, a recession—which I hope you're right that we don't have one, but it might happen, maybe not. But what's important to us is to be able to react quickly to minimize the impact of these outside shocks and to take advantage of opportunities that arise in the times of disruption. So we want to be super nimble.

We believe that having the right in-house operating expertise is essential to helping our portfolio companies react quickly. And we have a mantra internally that you can never have too much operating talent. So at One Rock, we'll look to continue to build those capabilities to position our companies in the best way possible no matter what the environment is.

TODD

Well, thank you both for a really interesting conversation today. I know you're busy guys, but we appreciate your time. And please, know that BDO does strongly value our relationship with both of your firms. So thanks for coming on today.

To our listeners, thanks so much for listening. If you haven't already, we'd love for you to subscribe, rate, and leave a review of the show on Apple podcasts. Until next time, this is BDO's Private Equity PErspectives.