Private Equity and Policy: Paul Ryan's Insight on Economic Impact and Investment Strategy

[00:00:00] Lloyd Metz: Get ready to peer behind the curtain of the private equity universe with each episode of best, but never final. Hi, I'm Lloyd Metz joined by Doug McCormick and Sean Mooney. Together, we'll navigate the quarters of private equity, revealing the uncommon knowledge, challenges, successes, and lessons that drive the world of private equity and business forward.

[00:00:30] Let's go.

[00:00:36] Sean Mooney: It is great to be back with. Doug and Lloyd. Lloyd and Doug, how are you guys?

[00:00:41] Lloyd Metz: Good.

[00:00:42] Sean Mooney: Great. All right. Well, we've got a really good one here in part, not only because we have Doug and Lloyd, but we also have another really great guest. So with that in mind, Doug, let me throw the baton on to you. Can you make an introduction?

[00:00:55] Doug McCormick: Sure. It's my great pleasure to introduce my good friend, Paul Ryan. I'm sure many of you know Paul as a outstanding congressman from Wisconsin, Speaker of the House, Vice Presidential Candidate in 2012 with Mitt Romney. I've had the good fortune of knowing Paul not only as a friend, but as a travel mate to Egypt, as a hunting camp buddy, and most recently as an advisor to all things related to my brother Dave's campaign.

[00:01:19] And so since Paul left public service, he's really put together an interesting portfolio of things he's been spending time on. He's a partner at Solamere Capital. He's on the board of Fox Corporation. And my favorite is he's lecturing at Notre Dame and his lecture schedule happens to be on Friday afternoons in fall.

[00:01:37] Or home football games. So, and I got to say, I'm so excited for this episode. We're going to really be broad ranging. We're going to talk about Paul's decision to pursue a career in private equity, post public service, talk a little bit about his firm Solamere Capital that he's working with, and then really talk about the convergence of policy, economics, and private equity.

[00:01:59] And I just think, as we think about our current political landscape, there is no one better positioned to be able to talk to that with authority. He's lived it. And so I'm really excited for that part of the conversation. And again, Paul, thank you for joining. You bet.

[00:02:11] Paul Ryan: Thanks for having me. Nice to be with you.

[00:02:13] Sean Mooney: This will be a really good one and sharing the appreciation to Paul here. Why don't we jump right in? Because there's a lot of, I think, really kind of interesting things that we'll touch on today. So Paul, I'd be really curious to hear your story. You had a life of service. You continue to serve. You had all these options in terms of where you could have contributed your skills and perspectives and insights.

[00:02:40] How did you go through the process? And really, how did you end up entering into the private equity industry, given kind of the full art of the possible? Yeah,

[00:02:48] Paul Ryan: I decided basically that after 25 years of public service to answer a higher calling, private equity, that's a name I borrowed from all the time.

[00:02:58] So economics is my love. I worked in the field of economics before I got elected as a think tank guy. Most of my time in Congress, other than my last two terms, I did 10 terms. My last two was speaker. That's more of a administrative management job. All the other time I spent almost exclusively in economic policy.

[00:03:18] I chaired the Ways and Means Committee, the Budget Committee. So economics is what I love. And I decided I wanted to go into the field of economics in particular with private equity. I teach at Notre Dame. I'm also a fiscal policy fellow at a think tank called the American Enterprise Institute. But what I wanted to do.

[00:03:34] Is go inside the free enterprise system. I spent 20 years elected in Congress, defending the free enterprise system. I wanted to work and operate within the free enterprise system. I spent two years after retiring from Congress and I was 48 years old when I retired, so I had a lot of gas in the tank and I looked at a lot of different opportunities, different spaces.

[00:03:55] I looked at big banks. I looked at venture capital. I looked at bulge bracket, private equity firms. And I just sort of came to the conclusion that for me, the right fit was lower middle market private equity. I wanted to work within the ecosystem of founders and helping founders grow and realize their dreams and grow their businesses and get that business up to the next horizon that they need help getting to, it sort of reminded me of all the people I represented in Wisconsin.

[00:04:24] You look around the state of Wisconsin. It's just thousands of medium sized businesses that are doing something really interesting. They have big protective moats. They have hundreds of employees, usually family owned businesses. And I just loved advocating for them when I was in Congress. And I just remember thinking, that's the kind of people I want to spend my time with.

[00:04:45] All the other firms, the big bulge brackets, they all fit really important niches and play an important role in our economy. But for me, I wanted to find a firm that had the right kind of culture and values that I wanted to be a part of. That's it. In Congress, you don't really get to choose your partners.

[00:05:01] I never got to do that. I wanted to go to a place where I could pick my partners, who are the people I wanted to spend every day with working with. And I realized the really big firms, you don't get to do that. So the more niche, smaller, lower middle market, that to me is the place. And then as I just looked at the ecosystem, Financial engineering and adding some debt to juice returns.

[00:05:26] That plays an important function in the economy. That's not what I wanted to do. I wanted to work with those founders on growing their businesses and coming up with an investment thesis and curating that thesis and then executing that thesis and then moving it. And what I learned in this space is everyone's aligned.

[00:05:43] So I just love the idea of perfect alignment. The last thing I'll say is in Congress in particular, but politics in general, half the people you work with the other party every day are trying to defeat you usually. And then maybe a quarter of your own team for various reasons are sabotaging. I never had a chance to be like perfectly aligned where everybody is in the same boat, grabbing an oar, rowing it in the same direction.

[00:06:11] It doesn't always happen before deals are done. But once you get an agreement and a deal, everybody's going in the same direction with the same KPI. And that to me is refreshing and glorious and fun. And I'm an achievement junkie. It took me 20 years to get the tax code rewritten. It took me years to pass all these other bills that I've tried to pass that I did pass in this business.

[00:06:33] You can achieve things really quickly. So I just think it's very fulfilling and it serves a really important role in the economy. Far more important than I ever knew before as an economic policy maker.

[00:06:45] Lloyd Metz: That's great. I'm curious, Paul, how did you land on Solamere specifically? Like there are a lot of choices, even with the family founder focus.

[00:06:56] How'd you find Solamere?

[00:06:57] Paul Ryan: I had a bunch of different options and offers with the big, big firms. And I think those firms mostly wanted me to be kind of a dancing bear to run around the world, raise money and wine and dine sovereign wealth guys and stuff like that, and not be in deal teams and investment committee.

[00:07:14] So I wanted to be on the investment committee on deal teams, working these things. Really learning how to build models and all the rest. And so pretty much because of the people of Solamere, because it was Mitts who founded it along with Tag Romney, Eric Schuerman, and Spencer Zwick, they're people I've known a long time to have great values, great culture.

[00:07:35] They positioned themselves and Mitt did this. He founded Bain, left it to the Olympics and the governor. And then when his tenure non compete ended, he founded another firm called Solamere, this firm. And he wanted this strategic capital. So instead of endowments and pension funds, it's 170 or so families who are sort of first generation, the families who made the money in the businesses and in CEOs and founders who made the money in the businesses in which we invest, so it's really strategic capital, they co invest, they get involved in sourcing deals and diligencing deals, and most importantly, in growing the businesses after the transaction, after we've grown them.

[00:08:14] It's just this great plate of mentors and smart capital that really knows how to see around corners and help these portfolio firms with the great culture, very conservative on debt, very conservative on economics. So to me, it was that culture. That the founders really bred into this firm that I really was attracted to. That's basically that culture, that ethos. That's why I picked Solamere.

[00:08:40] Lloyd Metz: I got to ask, what was the hardest part of your transition from speaker of the house being on the Hill and Congress for so long to now, I think I even heard you said you wanted to learn how to model.

[00:08:51] What was the hardest part of making your transition to private equity?

[00:08:55] Paul Ryan: The numbers are a lot smaller. So I was kind of a geeky guy in Congress, big joint tax CBO spreadsheet guy. Spent a lot of my time on that and on macroeconomics, uh, modeling, actually modeling return profiles. With portfolio companies with MNA and with bolt ons and roll ups and et cetera.

[00:09:17] That was just different thinking. It was different economics. It was different metrics, but I want to be able to look at a spreadsheet and see what MOIC is going to look like. I already knew what EBITDA was. I knew cause I'm a tax writer. I knew those concepts, but I didn't understand fully all the other concepts like MOIC net DPI, which are things we really pay close attention to and then getting that pattern recognition as you look at deals.

[00:09:40] Can we keep those priorities maintained? Can we have good cash back? What's the term structure of the debt? What are the multiples that we're buying this at? We prefer not to do auctions. We prefer sourcing deals through our network, but sometimes we'll do an auction because that's relevant. It's the third part of a roll up strategy or something like that.

[00:10:00] So I think the hardest thing was just getting the pattern recognition and https: otter. ai

[00:10:10] When can we get off risk? We'd like to get cash back and get off risk as quickly as possible. When do we think that will happen? What are those assumptions? And then adjusted EBITDA versus free cashflow. Big difference, just seeing all of that. So really just sort of understanding that. And frankly, I spent a lot of time with these young guys in our team, these guys who are fresh out of business school who spent the last five years doing nothing, but this kind of number crunching.

[00:10:35] We usually hire from the accounting firms and the investment banks and the business schools. Yeah. I've learned a lot from these younger people, just about how to do all of that, in addition to our founders who spent 20, 30 years doing this, and frankly, I love learning curves. It's really fun. It's a lot like what I did before.

[00:10:50] It's just different concepts, different calculations, different numbers. And again, It's alignment and it's so much different than politics.

[00:11:00] Sean Mooney: This episode is brought to you today by HCI Equity Partners, a lower middle market private equity firm, focused on partnering with family and founder owned manufacturing, service and distribution companies, ICV Partners and innovative private equity.

[00:11:16] Supporting management teams of leading companies at the lower end of the middle market and BluWave, the Business Builders Network connecting the most proactive business builders in the world with the best of the best service providers for critical variable, on point and on time due diligence and value creation needs.

[00:11:34] Now back to the episode.

[00:11:38] Doug McCormick: So Paul, just to acknowledge your humility and self-awareness to be able to say, if I'm gonna be a 20 year guy in private equity, I really wanna make sure I got the fundamentals and not just play to your strength. I so applaud that. And I think it's obvious you're just so passionate about it today. And I hear the passion in your voice.

[00:11:55] And I think that's what gets guys like me and Lloyd up every day. It's just so much fun. Like being on the front lines, building the business as opposed to being an asset manager. I think we're entrepreneurs more than underwriters.

[00:12:07] Paul Ryan: I love learning. I just like scaling learning curves. I think it's really fun and interesting.

[00:12:11] And I knew I could do something here. And then the stuff I do know, the networking effect, the pattern recognition, the macroeconomics, the thesis building, the regulatory stuff, that stuff I know, and that's my big value add to the firm, not being a number cruncher modeler, but network development, network effect.

[00:12:28] And doing M and a, I mean, most firms we buy are owned by chamber of commerce Republicans in the middle of the country. So I go by a lot of businesses in the middle of the country from people that are more than happy to come and see what we have to offer and open the door to us.

[00:12:41] So that kind of deal flow is. Stuff I'm good at and stuff that I have an actual skill set for. It's the other stuff that I didn't know that I've actually enjoyed learning the most.

[00:12:50] Sean Mooney: I'm guessing the concept of adjusted EBITDA or EBITDA is probably the thing that was most familiar to you from your DC experience.

[00:12:59] And then the question is like, what else was like from your years in public service really did apply? There were things that you had, maybe the acronyms you had to learn, but what really translated? Well,

[00:13:08] Paul Ryan: I just had a conversation with one of my successors, the budget committee, the current chair, who's got a lot of work ahead of him.

[00:13:15] He's also a Ways and Means guy. This is what I marinated in for years. I was just walking through the baseline that he's going to have to build to write this budget resolution to then be able to write the tax law and what he has to think about in that baseline. It's a very similar concept. It really is.

[00:13:30] Working out adjustments, your TTM, getting all that stuff prepared, getting good metrics and building your business on it. It's actually pretty similar to how you build budgets in Congress or you build tax bills in Congress. You have to start with baseline assumptions that reflect reality as close as possible and then write your business plan to it.

[00:13:50] Sean Mooney: You kind of know where you want to go and then it's about allocation of resources to get there.

[00:13:55] Paul Ryan: You know what your destination looks like? What are all the things you got to do? What? It's all the wood you got to chop to get between here and there. It's kind of a similar thing.

[00:14:02] Lloyd Metz: What I'd love to hear is when you're in these conversations with those business owners. What are like the top one or two things in their heads that they're worried about or they're thinking about as they think about Taking on a private equity partner?

[00:14:17] Paul Ryan: First. Most of them don't like private equity. They've heard horror stories They get these cold calls and they're sick of the cold calls That's one is just to reduce that barrier and they're more than willing to like listen when a familiar person calls them to say Well, here's how we do things differently.

[00:14:34] We are founder friendly We sort of position ourselves, and we think of ourselves as kind of like boy scouts in this industry, which is, we do this in such a way that we don't want to buy people out and take it from there and have this ridiculous assumption that we can fly in some East Coast McKinsey Bain people and think we can run your business better than you can.

[00:14:55] So we dispel ourselves of that arrogance to begin with. That right there is a nice, barrier or hurdle you have to overcome because a lot of these guys get literally cold called by those people all the time. And then when you walk through just our founder friendly aspect about how we take minority positions if that's what people want or majority but not significant majority positions, how we erect an alignment of interests.

[00:15:19] And then what we bring to the table to help grow that business after the fact. That's really our secret sauce, which is we have a stable full of investors who will be investors in owning a piece of that business who really know this industry, who've already scaled that industry. Who've run very large businesses and organizations inside their sectors, who can help open lots of doors for the customers who can help them get from where they are to where they want to go.

[00:15:46] And what we do is when we have some LPs who are specialists in that industry, we give them a bunch of co investment, which for us, it's fee and carry free that we give out. So they get even more bonded and more involved. Everybody gets co investment on a Parata basis, but we do more for those who are going to join the board or get involved in the business or come to our board meetings.

[00:16:06] They're not paid advisors, they're investors and that alignment, I won't go through all the names, but we basically have people who are very well known in their sectors who are LPs. And that's why we sort of go into those industries. And so that along with the sort of the founder friendly nature and the way we are very conservative on debt sort of breaks down those barriers, eases the conversation.

[00:16:29] They sort of see us more like family office capital, frankly, because we're just a group of families and founders that are together. We have insurance companies in our cap table as well, because they're longer term thinkers. And we have a rule that if we like the business so well, it's kicking off cash and the 10 year window is hit in the fund, we'll just take our management fees to zero and roll it into a holding company and hang on to it.

[00:16:53] Because if our capital is long term oriented, we are long term oriented. And if the founder, if the owner of the business doesn't want to sell, then we won't sell. We're never going to push a person to sell. So because we have that sort of DNA. Mitt and Tag and Eric and Spencer really bred that into our system.

[00:17:11] They kind of see us differently than I think the typical

[00:17:13] Doug McCormick: PE. Yeah, Paul, it seems like you do a great job of solving the fundamental business problem, which is another reason why I just think lower middle market is so interesting, right? You're solving succession planning issues. You're solving liquidity needs for entrepreneurs.

[00:17:26] And so there's always a need for that good economy, bad economy. You bring your solution to the table and you're a real partner.

[00:17:32] Paul Ryan: Exactly. It's all about alignment and it's all about making sure that a person who built the business still runs that business. We're not an overseer. We're a partner. We make decisions based on alignment.

[00:17:44] Doug McCormick: Before we talk about the convergence of private equity policy and economics, I just want to set the table here in terms of how relevant Paul's perspective is. You rewind that clock, 2017, he's speaker of the house. You've just accomplished the Republican trifecta, narrow control of Congress, the Senate, and you have an incoming president who is none other than President elect Trump.

[00:18:08] And so, Paul, you've essentially lived what is about to happen with similar circumstances as we set the backdrop. If you could just speak a little bit to, given your experience with the participants and the institutions, what do you see as the major issues that the administration will be focused on? And then how do you think we will define success for the administration?

[00:18:31] Paul Ryan: I wish President Trump elect the best of luck. I want to see him succeed because if he does, we all succeed. And I think he's going to hit the ground running faster, better, more organized than the last time because none of us thought he was going to win. He didn't think it was going to win. They're going to move better and faster with more of a comprehensive plan than they did the last time.

[00:18:49] So I think that's off to a better start. Second of all, Yeah. One of the challenges is going to be, the majority we have in the House is like this big, and we still don't know, we're still waiting for a few races to be called, but it's going to be like a 221 seat majority. That is extremely narrow. So, and with Trump naming a few people to his cabinet already, from the House, I think we're down three now.

[00:19:14] Gates just, he's not going to be considered, he just pulled out, but he resigned already. And then you have Elise and you got Mike Waltz. We're down three now. So that makes it a really, really narrow majority. Unlike the Senate where the governor appoints a successor, the house doesn't work like that. The constitution is really clear.

[00:19:31] You have to have special elections. And so some special elections in some states are pretty quick and some others, they're longer. You have to have a primary, then a general election. So it will be months before Congress, the House, is at full strength. And that's going to be a narrow majority to begin with, a three or four seat majority to begin with.

[00:19:47] Difficult legislation is going to have to wait until the second quarter. So that means the Trump administration is going to have to be focused on getting their people in place. That's really Senate confirmation and regulatory relief. And so that's where I think you're going to see, uh, Doug, right out of the gates, regulatory relief.

[00:20:03] There's two tools that are pretty good. Again, you got to get these out of the house, but my guess is those are pretty easy votes to make, which is we have this tool called the congressional review act, where you can take a recent regulation from the past administration, going back a hundred legislative days, which is about say six months.

[00:20:21] And you can repeal it and that bill can go to the senate and it cannot be filibustered and with 50 votes plus a tiebreaker It can pass we did like I want to say i've talked about like 17 of those On the obama administration out of the gates. They'll be doing that The appropriations process will probably have to wait my guess until they're at full strength and the reason I mention this is if you're an and investing if you're thinking about the military or defense aerospace and defense investing What matters is having a new, fresh Pentagon budget, so that new capital can be deployed, so that new weapons systems can be bought, so that, that, that procurement ecosystem that needs to be reformed can get on with its reforms.

[00:21:00] It's going to be delayed until they can get past the continuing resolution, which is not very good for the military, and pass the actual appropriations bill. But those are hard to pass, and that means they're probably going to have to wait until their full strength in second quarter to do that. What they then will do is they'll pass the budget resolution.

[00:21:15] Which gives them the reconciliation tool to write the tax bill to extend the Tax Cuts and Jobs Act. That's more later second quarter when that happens. So just to give you a sense of the legislative timing, you can't do tough legislation until you're at full strength in the House. You can start doing regulatory relief.

[00:21:31] You can populate your cabinet and sub cabinet agencies. And then when those people are in there, you can do real regulatory relief. And so I would look for a burst of regulatory relief to begin with. Gary Gensler is not going to be at the SEC. Lena Khan is not going to be at the FTC. You're going to have to have a new FDIC, no new OCC.

[00:21:48] These are all sort of financial regulatory. Agencies that do matter for capital deployment. You'll have more hospital regulations there. If you're in the web three blockchain industry, that's not what we invest in, but I think that's really interesting technology that has been under the boot of the Biden administration.

[00:22:06] It has been just penalized under the Biden administration. And now you're going to have regulators that are much more hospitable to this sector. So I think you're going to have unlocking in the venture capital markets on the new technologies like that The techno optimists basically are in charge of the regulatory structure on ai You've got elon heading over to OMB I would add to that energy.

[00:22:27] If you're an energy investor, you're going to have a really hospitable regulatory footprint pretty darn fast, especially LNG permitting, things like that, so where it doesn't require legislation and where it hinges investments on regulation, that's going to be the first wave of good reforms because of just the pace of legislation.

[00:22:45] Then later in the year, the legislation and the thing that matters most to, I think, our portfolio companies, most of our portfolio companies are not C corps. They're going to be LLCs, S corps sole proprietors, section 199A, it's a provision I wrote in the tax code. It's really important. And that is the 20 percent business deduction that those businesses get to effectively reduce their taxes.

[00:23:09] Commensurate with how we reduce the corporate tax rate down to 21 percent from 35. So if that doesn't happen, their tax rate goes back up effectively to about 44%. That's a big, big, big tax increase on a lot of medium and small, and frankly, some big businesses in America. I'm confident that's not going to happen now, but that legislation is going to take some time to pass.

[00:23:30] That's the tax bill and those things in the narrow majorities, always difficult because there've been a lot of promises made and not enough fiscal space to cover those promises. So they're gonna have to pick and choose some of these things. You can't get rid of salt, in my opinion. You've got other promises that have been made that add to this ledger, so there's going to be a bit of a debate about how much deficit can we absorb, what tax policies truly grow the economy, are really important, expensing Section 189A, what tax policies are less pro growth and more negotiable.

[00:24:04] Because we're getting worried about deficit effects. That's going to be the big debate that's going to carry you into the spring and the summer. And then you'll be full strength come fall with real appropriations legislation and the bigger term stuff. So I think that's what the kind of year looks like.

[00:24:18] But frankly, I think it's going to unlock a lot of M& A. It's going to unlock a lot of private deals. And then the thing I would worry about is just our growing debt and deficits, the structural push on that, and interest rates on the Fed's posture toward that, and the

[00:24:32] Doug McCormick: long

[00:24:32] Paul Ryan: bond.

[00:24:33] Doug McCormick: I'll kind of interpret it and say 2025 should be a relatively hospitable environment for business owners and therefore a backdrop for decent M& A.

[00:24:42] We talk about ourselves as lower middle market guys, we view ourselves as business builders. So how do you think business builders should think about these public policies and the implications for success or failure on their business? How much can they control? How much can they underwrite? How do they navigate that, if at all?

[00:24:58] Paul Ryan: I feel good on everything but interest rates. If you're thinking that you want to just use debt to juice returns, think again, I think. And then if you're looking at using debt for M& A or just organic growth expansion, think about your term structure on your debt. Think that through and stress test.

[00:25:15] Because I just think all those circumstances that are out there, that are pushing interest rates up, I think that's something to consider. The last point I'll make, and I didn't want to talk too long, but your last answer is, and look, I'm not a big fan of the mercantilism, I'm kind of a unicorn in my party these days, I'm a free trader, I believe in free trade agreements that we actually enforce.

[00:25:32] But that's not the crowd in charge. And so I think president Trump, I don't know where Bob Lighthizer is going to land. He's a very capable, good guy, but he's a mercantilist. He's going to be in a very important role. I would be thinking about what's my supply chain look like? Where is it sourced? What are these tariffs going to look like?

[00:25:51] Are there going to be exceptions to these tariffs? How much exposure do I have to tariff risks? I think that's the thing you get a stress test in addition to interest rates. The only other thing I'd say is we are decoupling from China. That's going to happen. That's bipartisan. Both parties agree on that.

[00:26:07] And we also learned in COVID that our supply chains were just too vulnerable and too elongated. I'm very bullish on North America as a competitive moat, literally, but also I think I'm bullish on North America is bringing a lot of manufacturing back to our country. We're bringing it back because of decoupling because of reshoring supply chains and because of our national security needs.

[00:26:28] And we're going to be trillion dollar north for defense for as far as the eye can see. So will our allies be investing in defense? So I do think that that space, that ecosystem, that manufacturing industrial complex is going to be attended to. We really have to build up our defense industrial base. Which also is the rest of our industrial base.

[00:26:49] A lot of the upstream businesses make parts for car companies, for defense manufacturers, for, you know, agriculture and the rest. So I just do think that North America is going to be a pretty good bet on goods and services businesses. That's what we're looking at because we want to de risk on. China decoupling and all the rest.

[00:27:08] So as you think

[00:27:09] Doug McCormick: about overall narrative, you think growing GDP, more demand for labor, any comments on how to manage that labor dynamic in the context of the immigration policy?

[00:27:21] Paul Ryan: Yeah. It's one of our

[00:27:22] Doug McCormick: big

[00:27:22] Paul Ryan: investment thesis is Solamere, which is we're investing in labor supply. We own a company called IPS integrated power services.

[00:27:30] Which is one of the country's largest suppliers of labor to maintain and fix sophisticated equipment in factories. If you go around any industrial park in any state in the country, and you go to a medium sized business, that's a manufacturing facility, odds are they're going to have some aging baby boomer.

[00:27:47] Who's in charge of taking care of all that equipment, those motors, those pumps, those drives, those CNC machines. And when that guy retires, there may not be somebody to replace them. So we supply workers that basically. Work their entire service area and call on a number of firms in their area 24 7. And maintain that equipment.

[00:28:06] That's one of our theses. And we've done 22 bolt ons to this business. The reason I'm mentioning just a portfolio company is we have a thesis, which is when you look at reshoring manufacturing, decoupling from China, where are the pinch points? Where's the narrow part of the funnel? It's labor and skilled labor.

[00:28:24] To man, these factories, these are great jobs, good careers. So I think investing in that space, that supply of labor is really important. We're also investing in the education of that labor and education platform investments in this area, because we think there's going to be a huge demand on immigration, Doug.

[00:28:43] I think Trump's going to do a good job getting on the border. He'll do remain in Mexico. He'll fix as much as he can, regulatory, the asylum laws. Sooner or later, he's going to have to get a deal, which involves Democrats, because immigration, you can't put that in reconciliation for the most part. That's 60 votes.

[00:29:00] So if you can really control the border and convert our system toward like an economic based, point based system, kind of like the one Canada has. You can bring in labor to America in such a way that you can make sure you're not depressing a person's wages. In the 20th century, that was the problem. We would open the doors, or we'd give out a bunch of guest worker visas, and they'd come and they would reduce someone's wages that was already here.

[00:29:24] You don't want that to happen. But you have, um, labor supply that is so tight that companies won't succeed. They will just go bankrupt and we'll lose those businesses and we'll import stuff if you can't get the attendant labor. Immigration done rightly can fix that problem. I'll finish with this. Thanks.

[00:29:43] The Congressional Budget Office is projecting that in the next 30 years, our growth rate for America, GDP growth, will be 1. 3 percent real growth for the next 30 years. That is less than half of what it was for the last 30 years. So cutting our growth rate in half is a tremendous downside on opportunity, upper mobility and business development and the rest.

[00:30:05] And it's for one reason alone, labor supply and immigration can top it off. Our birth rates aren't as bad as Europe, but they're not where they need to be. We can top it off with skilled labor. Trump would staple a green card to those PhDs. Absolutely. But he can bring in skilled labor and do it in such a way where you offer those visas for those jobs that are not being filled and only those jobs that are not being filled so that you can address this issue and get us back toward 3 percent trend growth.

[00:30:34] If he were to be able to get a bipartisan deal like that, which again, takes 60 votes, that'd be a massive game changer for the U S economy going forward. That and entitlement reform to prevent a debt crisis. You solve those 2 problems.

[00:30:49] Lloyd Metz: That's a win. That's all? Is that all, Paul? Just those 2 things? That's it?

[00:30:53] Paul Ryan: Get those 2 things solved and most of the rest kind of fix themselves. So, I'm just saying, our thesis. We put our money where our mouth is, labor supply for manufacturing.

[00:31:03] Doug McCormick: We talked through the course of this conversation about two important things that private equity is doing, which are real positive to the overall economic landscape.

[00:31:10] One, valuable provider of liquidity for succession planning and helping family businesses monetize their life work. And then the second is like the value you bring to an IPS. I know that business relatively well, grown tremendously through M& A. And as a result of that has a whole set of new capabilities and a better value proposition to the customers across America.

[00:31:29] So you're building a better business and you're providing a valuable source of liquidity for those families as they pass the wealth generationally. With all that said, do you think Congress understands those values? Why does private equity seem to have a relatively negative connotation as you think about the political landscape?

[00:31:50] Paul Ryan: Yeah, well, I think just about anything that comes from capitalism more or less has a knock on it these days, especially if it's financial in practice, because it's financial in practice, it's probably less understood. Generally speaking. Look, I was a tax writer. I understood the private industry industry.

[00:32:05] If you're on the Ways and Means Committee of the House Financial Services Committee, or the Senate Finance and Senate Bank Committee, you're probably going to understand how it works. But if you're not on those two committees, you're You're not going to know how it works. So that's the thing. Also, they think barbarians at the gate.

[00:32:20] People think about that stuff, which is sort of that gen one. What's interesting about private equity, which frankly I didn't quite appreciate it fully until I got into it, it, it is so positively changed the US economy in such profound ways. It's enormous. And I don't think anybody really quite understands this.

[00:32:40] I'll just say it in a quick way. By having private equity being deployed into our marketplace, all sizes of businesses, you are building a durability into our economy that we never had before. And you're building deep and liquid capital markets that we've never had before. And banks don't work like private equity does because they're cyclical.

[00:33:05] So if the cycle goes down and credit gets tightened. If the economy is weakening, banks tighten their credit. That's when private equity can stabilize an economy. That's when private equity can come in and buttress and save a business. And so the term structure on loans on interest rates provides ballast to our economic system that the banking system doesn't do.

[00:33:28] It's in addition to, not in place of the banking system. No other country has that. Europe does not have this. Europe just has a handful of big banks. Thank God we have community banks and medium banks and regional banks and big banks, but even those really tighten and have really weird term structure on their debt and their credit.

[00:33:47] Private equity has the opposite of that. It's perfectly aligned with the owners of these businesses and it's patient. It's patient capital. It's trillions now that have been injected into our economy that really served to underpin this economy for the very businesses that go down in recessions. They don't now as a result of this kind of capital being deployed.

[00:34:08] And that has given us sort of a counter cyclical antibody durability to our economy that frankly no other country in the world has.

[00:34:17] Doug McCormick: That's fascinating. I have always been super impressed and a big advocate for the two things I talked about providing liquidity and Improving the quality of the business model through investments in infrastructure, people, M& A, et cetera.

[00:34:29] But that financial woven into the fabric of our financial system in a way that makes us more robust. And then by the way, in a slower growing GDP environment, to have an asset class that's outperforming the broad public markets by a percent or two in a land of many retirees is also super interesting.

[00:34:48] We do such a bad job telling this story and then hopefully convincing. Folks like yourself that are still in the political game to have policy that is thoughtfully promoting these positive benefits. What can we do as an ecosystem? So portfolio companies, private equity managers, give us some advice there.

[00:35:07] Paul Ryan: I've been telling the story through the portfolio managers. So every member of Congress is going to spend time in their state, their congressional district, doing business tours and planned tours. Invariably these days, because of the depth of the markets, they're going to have private equity partners. I can guarantee you, most portfolio companies aren't telling the visiting congressman or a congresswoman.

[00:35:27] This is how I get my capital. This is who's behind me. They're not telling that they're just saying, this is what I make. This is who we are. This is who we employ. So I think getting portfolio companies to tell the story about this ecosystem, about the durability of this capital structure. I think it's an important thing.

[00:35:42] Don't go to the Hill when you're worried about tax law or some regulation. Don't go when you're under duress. Go talk to policy makers when you don't have anything to ask. All you have to do is educate. Doing that is really, really important because when someone's coming into your office. I have probably 40 meetings a day in my career, you do them in 15 minute increments.

[00:36:02] It's almost always someone asking you for something. You filter that one way or the other. But if you're going in and meeting with policymakers saying, just want to let you know, this is what we do and this is what we've deployed capitalized in your area. These are the investments we've made. And you go in with that portfolio owner, that portfolio company and say, We just added another factory.

[00:36:24] We just added a hundred more jobs because of this capital we've gotten. And now we're growing and adding jobs and getting customers. That story needs to be told when you don't want or need anything all the time.

[00:36:37] Sean Mooney: How do you even do that? It just seems so kind of foreign to me. Like, how do you reach out to your congressman and say, here's what we do?

[00:36:45] Paul Ryan: Well, normally it's, like I said, through your portfolio companies that have a trade association they belong to, that have an industry group that they belong to, that may have a reason or another. If it's an agricultural based industry, you'll go through the Farm Bureau. All of those portfolio companies usually have something they want to communicate to their elected leaders because government affects them.

[00:37:07] That's a good instance where they're going to go and talk to those people. But just otherwise, just go have meetings with your members of Congress.

[00:37:13] Sean Mooney: Just calm up. Yeah. Just calm up.

[00:37:16] Paul Ryan: If you've got a business in Allentown, go talk to the Allentown Pennsylvania Congressman and the Senator about who you are, what you do, what you build, and how many people you employ and how you're growing.

[00:37:25] They want to know that. They want to hear that.

[00:37:28] Lloyd Metz: That's good

[00:37:28] Sean Mooney: advice. It is good because it's sometimes it's that simple, right? It's just have the audacity to pick up the phone. Just

[00:37:34] Paul Ryan: that simple.

[00:37:35] Sean Mooney: There's going out. They're telling the story. My positioning was I think one of the biggest challenges that the private equity industry has had is the first word in private equity is private.

[00:37:44] And so they keep their heads down. They think discretion is the better part of valor. They'll get tapped on the shoulder for doing good work. But if you're not showing up at the party and the music stops, you're the one without the chair.

[00:37:54] Paul Ryan: What I always tell people is if you're not telling your story, someone else is.

[00:37:58] And who is telling your story?

[00:38:00] Sean Mooney: I think that's very good advice. A lot of my friends in the industry, and we've kind of done things with the industry advocacy group, the American investment council, and they do really good work, but you know, a lot of people like, should we just change what we're called to growth equity?

[00:38:13] Because that's really what it's about. It's about growing and building and creating value.

[00:38:17] Paul Ryan: It's funny you say that. I think there's food for thought there because the venture capital industry is not considered like a boogeyman bad. It's considered like cool, right? Venture capital, they're seeding new businesses that are pre profitable that could take off.

[00:38:32] But after they start growing, they, they also need capital. And so the growth, I think it's really growth equity. I actually think of it more like that myself. That's how I describe it as growth equity. Private equity just doesn't have the right sound to it. And it really is growth equity. The funny thing is, is a lot of these businesses, they probably otherwise would not get this capital.

[00:38:53] They would not have this growth. The local banker just can't go to investment committee and have this investment, this kind of loans. So, but for this, these companies would not grow like they do and quantifying that and demonstrating that and showing that is this a macro economics guy seeing this thing from the ground up.

[00:39:13] It's amazing what this does for our economy that we didn't have 15, 20 years ago. I mean, we didn't have any of this 20 years ago. It's really something. And I feel like it's such a counter cyclical measure to our economy that does so much good. But I think it does need to be conveyed a little bit better.

[00:39:28] And it's really growth equity.

[00:39:30] Sean Mooney: The American investment council published an interesting study relatively recently, where they just looked at where all the money went. 85 percent of the private equity capital goes to small and mid sized businesses. So it's small and mid sized businesses investing in small and mid sized businesses.

[00:39:45] Paul Ryan: That's why I chose Solamere. That's why I chose this side of the market, because I just think it's the most interesting. And by the way, you get better returns. I prefer to measure success through returns than management fees.

[00:39:55] Doug McCormick: Absolutely. So Paul, I think we're coming up on the hour. Any provocative thoughts, anything you want to leave the audience with?

[00:40:01] Hopefully I haven't shut my mouth off

[00:40:03] Paul Ryan: too much already.

[00:40:06] Doug McCormick: What can you share with us that we may not be thinking about, but should be?

[00:40:09] Paul Ryan: I just think I feel bullish about the future of the economy. I am worried about a debt crisis. I am worried about treasury auction failures potentially in a year or two.

[00:40:20] And I'm worried about what the bond markets would do if that happens. I'm worried about the bond market vigilante coming back. I watched the 10 year bond a lot more closely than I ever used to. And so that to me is the tail risk. And I don't know that we have the politics that we need to get our debt under control in a fundamental way, which means reforming entitlement programs.

[00:40:41] And that is considered like the debt is bad and we should do something about it and that's down the road. But I think it's getting to a point where this issue is actually going to start affecting markets. It's going to start affecting financing. It's going to be starting to affect capital and liquidity.

[00:40:55] So even though I think we have good tax policy ahead of us, we have good regulatory policy ahead of us. That to me is a pretty good risk. That's in the medium term. That's one I think we need to all think about. And so what we do is we look at all of our debt, all of our term structures, all of our revolvers, everything.

[00:41:12] And we use stress tests and we invest in businesses that we know can handle interest rate increases. We stress test that. That's one of the new lenses we apply. That's just food for thought.

[00:41:23] Doug McCormick: Well, Paul, you've been super generous with your time, amazing insights and congrats on what a wonderful transition.

[00:41:28] Sounds like you're having fun and having a great impact along the way. So thank you. You bet. Good to be with you guys. Thanks for having me. A special thanks to HCI Equity Partners, a lower middle market private equity firm focused on driving transformational growth through consolidation strategies by partnering with family and founder owned manufacturing.

[00:41:50] Services and distribution companies. Learn more at hciequity. com. ICV Partners, an innovative, lower middle market private equity firm supporting management teams of leading companies at the lower end of the middle market. Learn more about ICV at icvpartners. com. And finally, BluWave, the business builders network connecting the most proactive business builders in the world with the best of the best service providers for critical, variable, on point, and on time due diligence and value creation needs.

[00:42:25] Learn more about BluWave at BluWave. net. For further information on HCI, ICV, and BluWave, And relevant topics discussed here in the episode, please see the episode notes for links.

[00:42:38] Sean Mooney: The views and opinions expressed in this program are those of the individuals presenting, and do not necessarily reflect the views or positions of any other persons or entities, including those referenced herein.

[00:44:06] The information herein does not constitute advice or a recommendation or offer to sell a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge or experience to be able to understand and make their own evaluation of the proposals or service described herein.

[00:44:26] Any risks associated therewith and any related legal, tax, accounting or other material considerations to the extent that the listener has any questions regarding the applicability of any specific issue discussed herein to their specific portfolio or situation, prospective investors are encouraged to consult with the professional advisor of their choosing.

[00:44:47] There is no guarantee that any investment objectives will be achieved. Moreover, past performance is not a guarantee or indicator of future results. Specific investments described herein Do not represent all investment decisions made by Solomere Capital or any of the other speakers in this episode.

[00:45:02] This reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. Certain information contained herein constitutes quote unquote forward looking statements, which can be identified by the use of forward looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue, or believe, or the negatives thereof, or other variations therein, or comparable terminology.

[00:45:35] Due to the various risks and uncertainties, actual events, results, or actual performance may differ materially. From those reflected or contemplated in such forward looking statements, nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future. All expressions or opinions are subject to change without further notice.

[00:45:56] Inherent in any of the investment is the risk of loss.

Join Doug McCormick from Oridian Capital Partners, Lloyd Metz from ICV Partners, and Sean Mooney from BluWave as they explore timely private equity topics and offer their seasoned perspectives on crucial areas of focus within the industry. Gain valuable insights from these industry experts in this engaging podcast tailored for PE professionals.