New Mountain's Steve Klinsky on Private Equity Evolution

In Brief: Steve Klinsky, founder and CEO of New Mountain Capital, sat down for an extensive interview about his 44-year journey in private equity, from co-founding Goldman Sachs' first buyout group in 1981 to building New Mountain into a $55 billion alternative asset manager. Klinsky, who witnessed the industry grow from 20 firms managing $1 billion to 5,000 firms managing $5 trillion, argues that private equity has evolved from a financing mechanism into a sophisticated business-building enterprise. He warns against the industry's reputation challenges while predicting consolidation in the wealth channel, emphasizing that only firms with proven operational excellence and consistent performance will thrive as private markets go mainstream.

Big Picture Drivers:

• Industry Transformation: Private equity evolved from financial engineering to business building over four decades

• Capital Explosion: Assets under management grew from $1 billion to $5 trillion since early 1980s

• Wealth Channel Emergence: High-net-worth investors increasingly accessing private markets previously reserved for institutions

• Operational Focus: Success now depends on deep industry expertise and value creation rather than leverage

Key Topics Covered:

• Early PE History: Goldman Sachs' first $12 million buyout when interest rates hit 15.84% in 1981

• Scaling Strategy: Growing from one-person startup to 265-person team while maintaining culture

• Multi-Asset Platform: Expanding from private equity into credit, net lease real estate, and wealth solutions

• Performance Track Record: $87 billion in enterprise value gains with zero bankruptcies across portfolio

Key Insights:

• Family Business Mindset: Treating portfolio companies like family businesses drives long-term value creation and helps avoid bankruptcies through careful stewardship rather than aggressive financial engineering.

• Defensive Growth Strategy: Focusing on industries with secular tailwinds for the next five to ten years regardless of macro conditions provides more predictable returns than trying to time market cycles.

• Team-First Culture: Every employee receives carried interest from receptionists to senior partners, creating alignment and reducing turnover in an industry known for high employee churn.

• Talent Density Over Size: Success correlates to talent-per-dollar ratio rather than absolute fund size, allowing firms to maintain quality while scaling if they invest in team development.

• Operational Value Creation: New Mountain's 21-part operations playbook has saved over $150 million across portfolio companies through advanced procurement alone, demonstrating how systematic operational improvements drive returns.

• Industry Consolidation Coming: The wealth channel will likely see fewer major players than institutional markets due to the complexity of building national distribution and brand recognition.

• Technology Integration Focus: Adding AI and digital capabilities to traditional service businesses can dramatically improve efficiency, such as enabling doctors to visit 10 homes per day instead of nine through better scheduling systems.

Memorable Quotes:

• "We don't have portfolio theory, we have family business theory" - Klinsky explaining New Mountain's approach to treating each investment like a cherished family business rather than a financial asset to be optimized

• "It's not risk creates return, it's skill creates return" - Klinsky challenging traditional finance theory by arguing that business-building expertise matters more than taking on additional risk

• "If I'm in the boxing ring with Mike Tyson in his prime, I have all the risk and he has all the return" - Klinsky using this analogy to illustrate why skill, not risk tolerance, determines investment success

• "What you want to do is pick up the roulette ball and put it in the slot with your own hand. That's called business building" - Klinsky contrasting active value creation in private equity with passive public market investing

The Wrap:

Klinsky's perspective offers a masterclass in building enduring institutions within private markets. His emphasis on operational excellence over financial engineering, combined with New Mountain's expansion into wealth management, signals how established managers are adapting to democratized access to alternatives. As private equity faces increasing scrutiny and competition, Klinsky's four-decade track record suggests that firms prioritizing business building and stakeholder alignment will emerge as winners in the industry's next evolution.