Early PE was a "cottage industry" focused on finance. Now, with thousands of firms, the leading approach is hands-on business building and operational improvement, marking a fundamental shift in the industry's nature and a key to long-term success.
When selecting leadership, prioritize candidates with a consistent track record of success. Klinsky notes that what appears as "good luck" over a career is often the result of countless small, correct decisions that are hard to isolate but lead to positive outcomes.
New Mountain uses its PE team as a central analytical engine. If they lose a bid to acquire a company they've vetted, they leverage that deep knowledge to confidently provide debt to the winner, securing a safer position in a high-quality asset.
Steve Klinsky originally aimed to be a constitutional lawyer. After seeing his law school grades, he recognized he wasn't destined for the Supreme Court. This realistic self-assessment, combined with the rise of LBOs, guided his pivot into finance where he excelled.
Steve Klinsky interviews for long-term potential by asking candidates what they read and who they admire. This reveals their intellectual curiosity and value system, traits he considers more predictive of future leadership success than the technical skills already vetted by his team.
After making a potentially fireable mistake at Goldman Sachs, a young Steve Klinsky was met not with punishment, but with simple, practical advice from senior partner John Weinberg. This act of forgiveness for an honest error fostered loyalty and focused on problem-solving over blame.
New Mountain Capital holds a formal process every year to reassess its target sectors. This discipline leads them to abandon previously lucrative areas, like post-secondary education, when long-term headwinds emerge, ensuring capital is always deployed in areas with tailwinds.
A key evolution in private equity is holding top companies beyond the typical fund lifecycle. Continuation vehicles allow firms to retain their "trophy assets," offering liquidity to LPs who want to exit while allowing the firm and other LPs to benefit from continued growth.