War in Eastern Europe, lockdowns in China, soaring inflation, slowing growth, labor shortages, and widespread supply chain disruption: crisis after crisis has unfolded on the global stage in the past 12 months.
But Sachin Khajuria, a private equity veteran who rose to the highest ranks within the US buyout behemoth Apollo Global Management, sees profit in the chaos.
The 45-year-old dealmaker, who has just released a new insider’s account on the opaque world of private equity, believes that the current market turmoil presents a fresh chance for PE houses to make money.
“The industry is in a really good place and this period of dislocation, or controlled chaos, that we’re entering into, is another period of opportunity for private markets,” says Khajuria, who left Apollo in 2017 to run a family office that backs Blackstone and Carlyle funds among others.
Firing on all cylinders
Over Zoom, he tells Private Equity News: “In terms of performance, fundraising and opportunity, private markets are firing on all cylinders, and you’ll continue to see double-digit growth in lots of pockets”.
Khajuria’s new book, titled Two and Twentysets out to demystify private equity: how dealmakers spot opportunities, run companies, sell them on, and earn their 2% in annual fees and 20% of carried interest in the process.
His story begins in 2008. In an oak-panelled boardroom in Midtown Manhattan, 11 partners of an unnamed private equity firm are discussing how they can make money from the financial crisis, weighing up a deal for a German TV broadcaster.
Fifteen years on, Khajuria writes that today’s troubles – which he compares to “burning buildings” – present PE boardrooms with a similar opportunity. “In 2020 and 2021, the period in which I was writing this book, burning buildings were everywhere – and the masters of private equity were running inside.”
Khajuria – still a major figure in private equity circles – avoids name-dropping in Two and Twenty: No real industry dealmakers or company names are mentioned in his book.
Instead, he conjures up scenes based on his real life experience, with corporate battles and turnarounds for made-up companies such as Foodmart, General Insurance and PetCare Corporation.
Characters include “The Founder”, who grills a partner over an acquisition that has gone sour, and the two “Junior Members”, who remind one another that they’ll make $100m when they become partners as they work late into the night on spreadsheets.
The subheading – How the Masters of Private Equity Always Win – is untangled chapter by chapter as Khajuria sets out how PE bosses deal with problems ranging from a portfolio food company’s efforts to go upmarket to tensions between deal partners over who should lead an investment.
But despite the subheading, as Khajuria himself admits, PE firms do not always win.
With rising interest rates and high inflation, some buyout shops that have paid lofty valuations for companies in recent years will face trouble ahead if the downturn deepens.
“You’ll have winners and losers, and it’s going to be clear who the winners and losers are as this market unfolds.
“You have a tide of liquidity that came into valuations. As this liquidity starts to roll off, as financial conditions tighten because you have to control inflation, and as we keep getting these geopolitical shocks, whether it’s Ukraine or Covid…it accelerates the survival of the fittest.
“It accelerates the natural selection. That’s what these periods of dislocation are. They tend to serve as a catalyst for that natural selection in private markets.”
Spending most of his time between New York and Switzerland, Khajuria keeps an eye on both US and European markets.
Despite Russia’s attack on Ukraine, he is bullish overall on European PE: “I would expect deal volumes in Europe to grow. I haven’t seen deal activity in the UK tail off because of Brexit.
“Compared to the US, you still have slightly less developed allocations to all kinds of private markets. Not just private equity but life sciences, commodities and so on. Not all the US pension houses are fully penetrated into those.”
He has another reason to be interested in the UK: his passion for Chelsea Football Club. The bookshelf on his Zoom background includes a football, a hat and other fan memorabilia of the west London team in blue.
The recent sale of Chelsea included interest from some of the world’s best-known PE bosses, including ex-Apollo co-founder Josh Harris, Bain Capital’s Steve Pagliuca, and Todd Boehly, who led the consortium that won the bidding war.
Was Khajuria following the twists and turns of the sale?
“I have no official role but I’m quite close to what’s going on. It’s a little bit of an open secret that I know a lot of the characters,” he says with a grin.
The Chelsea sale was a rare example of buyout bosses coming into the limelight: more often, they have escaped the publicity that so many other business tycoons seem to garner.
Big Tech grabs the headlines, he says, but what about Big Finance?
“If you take Jeff Bezos at Amazon, Elon Musk at Tesla, Bill Gates at Microsoft – these are really consumer industrialists. The people who run private equity firms, particularly the founders if they’re still involved, are financial industrialists. But they’re not really thought of in that way.”
When they do receive publicity, it is not often positive.
Khajuria says: “The industry in general could do a better job of presenting itself. When you talk to the most senior people in the industry, they’ll agree we could do a better job at PR. By PR, I don’t mean spin. I mean real education about what it is.”
But he adds: “The perception of Barbarians at the Gate and all of that ‘LBO high-yield junk-financing’ stuff…that is improving.”
Barbarians at the Gate – the 1989 bestseller written during the nascent days of the leveraged buyout (LBO) – told a story of corporate greed and financial engineering that has cast a long shadow over the industry.
More than three decades after it hit the shelves, Khajuria is hoping his own portrayal of private equity will shed a new light on today’s buyout shops and what goes on inside them.
To contact the author of this story with feedback or news, email Sebastian McCarthy