Back to Basics

Russ Steenberg, the head of BlackRock Private Equity Partners, says PE investing is a “simple” business—requiring perfect execution

Privcap: You’ve been an LP with AT&T Investment Managers. You were at Merrill Lynch and Fenway Partners. What are some of the  lessons you’ve learned?

Russ Steenberg: Everyone wants to make this business very complicated. And at the end of the day, I’m not sure that it is. What I’ve learned-—and Joe Rice at Clayton, Dubilier & Rice told me this a long time ago—he said, “Russ, this is a business of cycles. It always has been and it always will be.” And that was in the late ’80s. I’ve seen nothing since then that would change my view. Knowing how to play the cycle becomes a very important skill set that private equity people need to have. So when the cycle is hot, you can sell into it. That’s how you make a lot of money. And when the cycle is not hot, if you have capital, it normally is a good time to put it to work—so when the cycle turns, you can sell those assets and make a lot  of money. Again, it’s not a complicated business in that sense.

What are some other lessons you’ve learned?

Steenberg: Private equity has been and will continue to be a people business. It’s about relationships. It’s about contacts. It’s about being able to do business with people. The other thing we look for in each of our investments—whether it’s a general partner team that we’re looking at or management teams when we’re doing co-investment-—is passion for the business. It’s those individuals with passion that we want to find and put money to work with.

Investors are changing their assumptions about how their portfolios should perform. What does that mean for private equity?

Steenberg: You can pick any 20-year time period you want and private equity performs ten to 500 basis points better on average than the public markets. Now, if you’re with the right people who have the right capabilities and the right skill set, you should be able to do better than the average return. So private equity becomes a very attractive asset class compared to the public markets today, given the environment we’re in. If we’re in a long deleveraging cycle, as many people say we are, we’re in the mid-innings or early innings of that ten-year cycle. The expectations over the next  10-year cycle would be, hopefully, for an improving economic environment worldwide. Which means the money that’s going in the ground today will have a cycle to sell into, where you can also get multiple arbitrage off of increasing cash flow and as a result make a whole lot of money.

You’ve said that BlackRock itself is a private  equity success story. What do you mean by that?

Steenberg: Most people don’t understand that BlackRock’s origins were as a private equity company. Today it’s the largest publicly traded asset manager in the world. But more important than being the largest is we are a pure fiduciary, and we only manage clients’ money. So the interest and the alignment with our clients is as pure as you can find in the world today, just like you want in the private equity world.