Inside This Issue - Opinion
Private equity can play constructive role
February 6th, 2012
At a moment when private equity firms are under fire and venture capital is sometimes referred to as vulture capital it’s reassuring to know that there are still investment companies committed to generating returns by helping the enterprises they back create value.
Leonard Green & Partners, about half of whose $10 billion portfolio involves the retail sector, falls into that category.
Jonathan Sokoloff, the firm’s managing partner, talked about how Leonard Green’s approach differs from that of many of its peers at the recent National Retail Federation convention: "When we started our firm 22 years ago we’d never heard of conscious capitalism or the stakeholder model. But we would visit companies and hear about their culture, putting the customer first, putting employees first — all these types of things. As we visited these companies we found more and more that these recurring themes were coming up."
Sokoloff said the correlation between firms with that orientation and a high level of satisfaction among both customers and workers was apparent.
"As a result, that approach has now become an integral part of our investment philosophy," he noted. "When we make an investment in a company, first and foremost we have great respect for it."
Whole Foods Market and The Container Store — whose CEOs Sokoloff shared the stage with at NRF — were cited as examples.
"Our strategy, our style is not to mess anything up," Sokoloff said. "They have great companies, they’re doing well. However, we have lots of resources that we can bring to bear that we think can make them even better.
"Many in our industry today pursue what’s called a value-added, invasive model, which is very different than ours. Leonard Green uses a more collaborative, supportive, suggestive model that great companies prefer."
Relying on the expertise of the people at the entities it invests in has served the private equity firm well. Over two decades Leonard Green has generated returns of 37.1%, while the S&P Retail Index has risen 7.2% and the Dow Jones industrial average has gained just 2%.
"By following these beliefs and investing in the best companies you end up with the best returns," noted Sokoloff.
In the process Leonard Green has helped strengthen several significant retailers and improve returns for those with an interest in them.