Ken Hersh

"I was kind of jealous that they had a company with projects to do, so asking if they needed some capital was sincere. We each had what the other needed. I never thought, since we had a dedicated fund, that somehow we were better than they were. Today, a lot of people who have capital to invest feel that they’re at the top of the food chain, deciding who does or doesn’t get money. That attitude of arrogance really bothers me. I treated these meetings as low-pressure affairs. My goal was to get networked into the industry and learn as much as possible along the way. I tried to make a lot of small talk, and I discovered that if you’re not threatening and you ask people about themselves, they’ll tell you things. I was an incredible sponge in those early years. I’d see these folks at industry conferences, follow up with a personal meeting, and be friendly. I always made sure to write personal thank-you notes for their time."

"At the beginning, we were comfortable, but not making over-the-top salaries. I really enjoyed what I was doing, and I remember being amazed at how I could make such a good living doing something that I didn’t consider work. I felt that our real goal was to make our investors the returns we promised we’d strive for. When we sold an investment and got our cut, it just sort of showed up. Don’t get me wrong, it felt good to earn a share of the profits that were so hard to come by, but watching this industry made me really humble. I knew that the volatility was real and that it was only a matter of time before any upswing would turn negative."

"Good people know how to make lemonade if the world gives them lemons. That was the epiphany of 1991. The oil and gas profit equation was rather simple. Revenue was simply price multiplied by the volume produced. Subtract costs to get operating profits. That means we had three variables: price, volume, and costs. As commodity prices were terrible and something we couldn’t control, we decided to base our business plan on controlling what we could—volumes and costs. We stressed finding honest people who knew how to increase volumes and decrease costs. For a couple of MBAs, that seemed to be a much more manageable task."

"Early in 1989, I went on the payroll of NGP even though I was still a student. David Albin was on board as the leader of the team based in Greenwich. Working there, too, was a former managing director at First Boston (now Credit Suisse) named R. Gamble Baldwin. Late in the summer, around the same time that the first Equitable meeting was coming together, Richard had called Gamble after reading an Institutional Investor magazine article that rated him the number-one analyst covering the natural gas industry. “How would you like to retire from the banking game, Gamble?” Richard had asked on a cold call to him. “I have these guys, and we may get this money, and I think they’ll need an adult around them.” I think Richard just liked the shock value in cold calling folks."

"He was bold in his thinking, but cheap with his wallet. As an investor, that is a decent combination. It translated into the goal of trying to gain control of reasonably valued assets with as little money as possible. Borrowing from lenders is one source of capital. But that was too obvious. This approach required creativity more akin to an inventor. He was a master at finding unique ways to approach or structure a deal that made an investment idea compelling. It was a combination of intellect and sheer charisma. Being around the man was simply magical."

"I’m going to jump ahead to my time at Morgan Stanley to give you an example. I remember I was at the office one Saturday, and this senior partner was messing with the copy machine. I could hear him struggling in the copy room around the corner from my bullpen. Since I was a junior analyst, I had a lot of experience with the copy machine and the presentation collator. He came around to my desk and asked where the toner was for the copier. (I guess the “needs toner” light was on.) I knew how to work the copier and knew where the toner was, so that made me the resident genius on the weekend. So I got up from my desk, went to the copy room, added the toner, and said, “Why don’t I finish this up for you?” He had a few copies to make and a simple presentation that needed binding. It was nothing, and I was the junior guy. Why wouldn’t I help the senior guy? I thought. He said, “Great. Thank you.” It took me five minutes. I carried the small stack of neatly bound presentations back to his office. You would have thought I had hung the moon. He was appreciative as he put the stack into his briefcase and packed up. I went back to my desk to continue working. Apparently, I was now “in” with this partner, and he wasn’t even in our specialty group at the firm. A few weeks later we were in a group meeting and this same partner came to our boss asking for help on a deal. It turned out that a larger client had some oil and gas assets held in a division of the company, so our group could help in the overall valuation assignment that his industry group was undertaking for that client. He called me out and said to our vice president as he gestured my way, “I want him.” The other analysts looked at me and seemed stunned that this senior managing director even knew who I was. I was a mini-celebrity for the moment—all because I changed copy toner and bound a few pages of his presentation. So yes, raise your hand and volunteer. And yes, put yourself in the way of opportunity, even if that is in the copy room."

"For me, the real satisfaction came from watching these companies get built, while being a friend and adviser to the senior management along the way. I enjoyed being aligned with the management. I wanted to win only if they won. Being a partner in a company’s growth is the great part of capitalism. We were sure to spread the equity ownership deep into each portfolio company, so that if the company became successful, many of the employees would share in the spoils."

"In recounting this ninety-day period of my life, it seems that I was really poor at picking up on signals to get lost. Whether from Richard or Julie, I viewed every opening as a gaping opportunity. The uncertainty kind of excited me. Once on the phone or in the room, I guess I was just not afraid of what would happen. I had confidence that I would figure it out. In reality, these situations all had one thing in common: I had much to gain and little to lose. The worst thing that could happen was that they would say no."

"In the end, we realized that if you’re in business with mediocre managers, it doesn’t matter how you structure it. If you’re in business with really great managers, it also doesn’t matter how you structure it. Winners will find a way to win."

"One big takeaway is that I didn’t get back on the plane when it looked like the deal was dead. I made a couple of calls in that cab. It led to ideas. I improvised. We didn’t give up. That was a seminal moment for me and gave me the confidence that I could do this job."

"wanted them to trust us, so it was important that we trusted them. I always wanted to be the person who could handle the call that came with bad news. Anyone can handle a call when good news is being delivered. But a true test of a partnership is when management has to deliver bad news to the owners. When we looked at the industry in this context, the successful path became rather straightforward to see. This was our light bulb moment. From that point forward, our mission was to find good, trustworthy people who knew how to make money even if prices went down. They knew the realities of the industry and that hope was not a business plan. Then, we set out to be the partner of choice in the industry."

"I try to make sure more sets of eyes are on every document before it goes out. I also use that story to remind everyone that, once upon a time, I made quite an error!"

"Again, I have always been one to raise my hand and say, “Hey, have you thought of this?” In this case, the worst thing that could have happened was that they’d reject the idea."

"If they asked me to do something that I did not understand, I’d figure it out. And I’d stay late enough to get it done."

"Energy is everywhere. If we sit down and start talking about energy, even if we don’t understand geology or geophysics, we will have a lively and relevant conversation spanning economics, business, politics, and geopolitics. Today, the energy industry is at the epicenter of the climate debate as well. Having command of the facts around supply, demand, and the economics of oil, gas, and competing energy sources has allowed me to be both an effective investor and an advocate for the industry at large."

"That was very small relative to his net worth at the time, but he acquiesced so that all of the deal team could take their fill. In my case, $ 75,000 was about all I could handle. Others in the office that day got a chance to invest as well."

"We were looking to find owner-managers who cared so much about making their company work that they would be throwing up in the shower at the panicked thought of their company’s failing. Employees will cut and run. Owners care so much that they will see it through, no matter what."

"Was it really that basic? You mean even a writer like me could invest in oil and gas? KEN: You bet! We came to learn that investing in oil and gas is really only about making a bet on a management team."

"It dawned on us: If analyzing assets brought to us to evaluate is really secondary to the judgment about the people, then why are we looking for deals where there are already existing assets in hand? Let’s work to identify great people and forget about the assets. Let’s get in business with them and go where they lead us. Give them a commitment to fund equity and let them go shopping with our money. If they commit some of their money to the deal also, they will be spending their money right alongside ours. So, if we think they are responsible shoppers with their own money, we don’t have to worry. Perfect alignment."

"It’s important to talk about this period because it’s almost a textbook study of how to reinvent yourself after your original model breaks. Or, in other words, what to do when it appears that the entire premise on which you based something is just dead wrong. I think psychiatrists refer to this as fight or flight—something to do with the amygdala in the brain, I think."

"Anyone could produce a business presentation that ticked off all the boxes of our criteria. So the question was: How do we get beyond that? I think one of my strengths was being able to ask good questions, the right questions. I would often ask, “What are you passionate about? What do you spend your time on?” I would offer to take them to dinner. Then, you could see how they treated the waitstaff, treated the valet, or how they talked about other people. We wanted to be around decent human beings."

"“All too often there’s a wolverine in the deal. Wolverines piss on everything they can’t eat. Right or wrong, that’s how I saw Darla Moore (Richard Rainwater’s wife) and Ken Hersh.”*"

"We missed a lot of opportunities because we felt like we couldn’t trust these people with our kids. That was our standard: Would we trust our kids with them? We’d do exhaustive background checks, and we walked away if the people were kind of iffy. Many times, these folks had good projects. But we usually stuck to our guns."

"Some would say that I am like a moth to the flame of the unknown. “Ready, shoot, aim,” I liked to say."

"Understanding that the industry is cyclical was critical. When times got bad, I didn’t quit or lose faith in our business plan or investment process. We hung in there, adjusted to where we were in the cycle, and pressed on. Contemporaries who left the industry when it was down, only to return when times got good again, generally missed some of the best investment opportunities. Focus and determination have produced experience and discipline that I’ve needed to weather the volatility."

"As an absentee landlord—which is what all investors are—I would always say I didn’t want the problem call at 2 a.m. If there were some major issues at the company, I wanted the call at 9 a.m. from the CEO saying, “I was up all night. Let me tell you what happened, and what I did to take care of it.” And for that extra seven hours of sleep, I’d let that guy make his money. I knew I wouldn’t be any help from afar, anyway. Plus, I am always grumpy if I don’t get enough sleep."

"I’ve learned that the government doesn’t make anything. Its revenue derives from taxes on the incomes and wealth of the citizens. It’s a massive resource reallocation machine. Don’t get me wrong, much of that is needed to address goals that we want as a society but cannot be provided by any single individual. Things like national defense, public safety, long-term research and development, and critical infrastructure. But when the government gets into the business of micromanaging sectors of the economy, it is way out over its skis."

"Luck certainly plays a role in life. But I think you put yourself in the position to have luck. That is the key. When I tell my story to people, I don’t say I was a born leader or risk taker. It’s more that I put myself in situations where the rewards outweighed the risks."

"For me, the energy industry had it all, even for a liberal arts guy with an MBA. I found it hard to follow the energy industry without also following economics, politics, and geopolitics. Moreover, it’s impossible to understand the industry without some working knowledge of history. Intellectually, the industry was engrossing. I wish it was a bit easier to earn a good return, but from a professional standpoint, it kept me on my toes daily. It seemed like almost every headline mattered every day."

"one thing baked into my DNA is that the fog of the future excites me. I seem to gravitate toward things that open up new doors, rarely needing a clear plan. We have all come across those gunners who seem to have their shit together and seem to know exactly what they want to do and where they want to go. I was never one of those people."

"We were just a group of colleagues trying to make a good return for our investors. We didn’t set out to create a large money management firm. It felt like a family business at the outset. I loved growing up with the private equity industry and playing a small part in that growth. I also enjoyed the challenge of turning a small partnership into a firm, complete with continuity and a lasting corporate culture. That was the evolution, and I discovered I had a knack for it."

"As far as I can recall, I never got intimidated by a clean sheet of paper. I could always start with a clean sheet and make things happen. Some people are good with embellishing something that was already started. I guess I have always been comfortable making stuff up as I went along."

"As a young capitalist, I thought leadership was relatively easy. To navigate uncertainty, I’d think through the decision tree of choices, evaluate the relative costs and benefits, and pick the best route."