Palingen is About People: Investors
We recently had a conversation with a potential investor. He was well-versed in traditional private equity as well as ESG and impact investing, but our approach threw him for a bit of a loop. We did not fall cleanly into either of the two categories he had in his mind. We were not purely profit-driven, but we also were not asking him to sacrifice economic return in the name of impact. It created the opportunity for a great conversation explaining our rejection of this ultimatum and our belief that focusing on both profit and people is one of Palingen’s core competitive advantages. In our experience, the companies that perform best over the long run are those that care deeply for all the human stakeholders involved, prioritizing the economic, mental, spiritual, and physical flourishing of everyone the endeavor touches. It is not that we believe we can balance these two competing priorities; rather, we believe we can only truly maximize long-term value if and when we ensure that the people responsible for creating that value are thriving.
We have put a lot of thought into how these ideas impact the operations and priorities of our portfolio companies. And to that end, we authored two previous articles diving deep into our approach to loving and serving the people we employ and the owners with whom we partner. But what about when we turn the lens around and think about Palingen’s internal operations? Shouldn’t the same ideas hold true, that if we value the thriving of all our stakeholders we will perform better in the long run, and that by performing better we create more resources to invest in the thriving of the people that are a part of Palingen? And what practically would this look like when applied to one of our key stakeholder groups, the people that have chosen to invest in Palingen, entrusting us to steward their resources?
But what about when we turn the lens around and think about Palingen’s internal operations?
It would certainly mean delivering a compelling risk adjusted return, but it is more than just that. It is an entire approach to our investor base that is deeper, more personal, and more aligned than what is typically found or expected.
In forming our approach to our investors, we had a lot of relevant experience to draw from, both good and bad. We have worked at firms where the goal was to interact with investors as little as possible. “A good investor is one you never hear from” was a common refrain. And even worse, we have seen people manipulate investor reporting, “tweaking the numbers’’ a bit here and there just enough to avoid having to show the full truth and answer the tough questions. These practices, however commonplace they may be, have no place at Palingen.
These practices, however commonplace they may be, have no place at Palingen.
We have also learned how to do it right. We have been part of deals where investors started out as just that, but ended up as friends. Investor relationships that were built on a bedrock of trust and operated with an open-book policy. Reporting that reflected the truth, even if it was going to result in a follow-up phone call and perhaps disappointment. These are the behaviors we are carrying with us into Palingen, but we aren’t stopping there.
Rooted in our experience and shaped by our values, we have established eight principles to guide our commitment to Palingen’s investors:
The opportunity to invest in alignment with the values our investors hold — Investors have, for too long, had to decide between philanthropy/concessionary investing or investing without a regard to the impact on others. Palingen offers an opportunity to break that dichotomy. In investing with Palingen, we are not asking our investors to lower their return expectations or put their values on the back burner. We believe that our ability to generate long-term value is dependent upon decisions to care deeply for the humans in the businesses we own. We want our investors to know that a dollar entrusted to Palingen is a dollar that is both working to make a great return and working to make people’s lives better.
Control of outcomes through majority stakes in private companies — We can’t change what we don’t control, which is why we only acquire majority/controlling stakes in private companies where we can ensure that our skillset is adding value to the operations and our values and principals are influencing the lives of the people involved.
An invitation to become part of something bigger — As an evergreen holding company, we aren’t just looking to get dollars into our fund, we are inviting our investors into a long-term partnership. We are building more than just a company, we are building a family. We intend to develop deep relationships with our investors and want to know how we can support their spouses, children, churches, and communities. We will be generous with our networks to foster new connections and will count our annual investor retreats as the highlight of our year. And we hope our performance leads to life-long investors who will one day pass their Palingen units down to their children or grandchildren.
Honest, straight-forward reporting — No gimmicks, no tweaks, no “sugar-coating.” If the numbers are great, that is what we will share. If the numbers are disappointing, that is still what we will share. We will give clear commentary and explain what is really going on — whether we are outperforming or underperforming — because honesty and integrity are the bedrock of building long-term trust.
Fee and incentive structure that aligns incentives and promotes long-term thinking — Our permanent capital structure enables lower, tax-efficient fees, with nothing paid out-of-pocket once committed capital has been deployed. We will provide transparent management company operating budgets annually. Management incentive compensation is designed to reflect and keep us focused on long-term value creation at the holding company level. We aim to set the bar in transparency and structure everything we do to keep our eyes on the prize of long-term value.
Long-term, tax deferred compounding as the best way to generate wealth — Our structure — an evergreen holding company with capital reinvestment — is designed to generate wealth in the most compelling way we know — long-term compounding through redeployment without interim taxes and fees.
Measuring what matters — Of course we will be measuring returns, with a focus on the multiple of invested capital and cash flow yield. But we will measure more than just the dollars. We will also measure and provide tangible results on how our investments are impacting people’s lives. For example, we will look at employee satisfaction and turnover, profit per employee, employee health (mental and physical), customer satisfaction and retention, employee divorce rate, instances of job-site substance abuse, referral rates (employee and customer), etc.
Focus on creating value in what we own, not raising the next fund — our structure allows us to stay focused on making what our investors already own more valuable, and the people touched by those investments healthier and happier. Without the distraction of raising the next fund (and the next and the next…) we can approach each day focused on increasing the value and the impact of the resources our investors have entrusted to us.
We recognize that Palingen’s investment thesis is not going to resonate with everybody, because not all investors have the same values, goals and time horizon. And that’s ok. We did not set out to create a vehicle with mass-market appeal. We set out to build a holding company that was aligned with who we are, the skillsets we have built over our careers, and the values we hold. We are inviting investors that want to place patient capital in a values-aligned way with a management team that views investor relations as far more than just a quarterly report.
If this approach resonates with you and you would like to learn more, please contact us.
Wednesday, June 16, 2021