Cofounder, TPG
An interview with David Bonderman, founding partner of TPG Capital | by Juan Mora, Los Angeles
An interview with David Bonderman, founding partner of TPG Capital | by Juan Mora, Los Angeles | Global Unit Unconference 1 | 1st May 2020 | https://www.unit.ventures | Sharing and Exchanging ideas by entrepreneurs, artists, investors, change-makers and futurists.
About David Bonderman
In a May 2020 interview, David Bonderman, founding partner of TPG Capital, discussed a range of topics including private equity, venture capital, and the U.S. response to the COVID-19 pandemic. Bonderman described the difference between venture capital and private equity, stating that venture capital involves taking risks on new businesses with no track record, while private equity focuses on established businesses where issues include management quality and the ability to affect change. He commented on the U.S. government's pandemic response, saying that if he were running the country he would "pay attention to the science" and "make use of testing in places it should be used and not worry about my personal popularity." Bonderman also criticized the U.S. approach to airlines during the pandemic, noting that European countries had provided funds to pay pilots and flight attendants to avoid layoffs, while the U.S. had "done the opposite and insisted airlines keep flying, which is just causing bigger losses." Bonderman also shared his views on corporate responsibility, stating that the belief that the only duty of corporations is to shareholders is "not the right answer anymore" and predicted change driven by U.S. pension funds. He described Elon Musk as "a force of nature" and "a brilliant guy," but added that "compliance with the securities laws is not one of his strengths" and predicted Musk would "get in trouble again." On the topic of taxes, Bonderman said that people should "pay their fair share" and that there are "too much tax benefits going to the wealthy and not enough to the middle class." He also reflected on risk-taking, advising that while "if you don't take any risks you can't fail," one should "examine your appetite for risk" and noted that appetite tends to decrease with age.
Transcript (78 segments)
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Interviewer0:10
His role as a private equity investor, the legendary founder of TPG Capital, and we will go back to that in a moment. If you're from Japan, maybe you know David for his participation in the NBA's Boston Celtics or the future National Hockey League team in Seattle. And if you're into music, maybe you have been to one of his parties. I'm lucky to know David as a friend, and he's brutally transparent. I also know him for his commitment to the environment, his anti-poaching efforts, his expertise in Islamic law, which only matches his education in gelato. He's a gelato sommelier. And to say that his socks are always, let's say, unexpected. He has a well-synchronized radar for an infuriating short mind and an amiable memory for detailed dates, geography, a passion for traveling and learning. He enjoys sharing, although not words, so I'll make my best effort to extract some of those answers from him in this session. Thank you, David, for agreeing to be with us in this amazing conference that Michael Ealy put together. After that introduction, we better go home now.
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David Bonderman2:12
Yes, words.
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Interviewer2:12
You were a pioneer in the world of private equity, and you did so by identifying an opportunity in Continental Airlines. Why don't you tell us about that opportunity and how it came to be, and maybe what we can all learn from that? What are the lessons that we can apply into our own fields?
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David Bonderman2:36
Well, Continental was a complex situation. The airline, which was the fifth biggest in the United States at the time, had gone bankrupt twice because the industry was so down on the industry in general, and in the particular case of Continental, that nobody bothered to look at the facts. There was no equity, no private equity firms in those days. It was all hedge fund operators and a few corporate raiders, as they were termed. We took a look at the numbers and we figured out that two years before it went bankrupt, Continental made $900 million that year. Then they made a few mistakes and the cycle turned against them because the airline industry is overwhelmingly cyclical. And that's what turned out to be. There was no competition literally because nobody had any faith that you could turn this airline around. And we knew little enough to know what we didn't know, which was plenty. So we jumped into the fray and it worked out all right. To do that, we spent all of our time for several years helping manage the company, install new management, and we got lucky in the sense that the aviation cycle turned while we were doing this, just in time to save us. In real human terms, Continental had 40,000 employees, all of whom were going to lose their jobs if Continental went under again. We had to reduce the payroll by 4,000 to keep the company viable, but ultimately it had 52,000 employees, so that was one good thing that happened. The second good thing that happened is that we made 10 times our money in three years, so that kind of put us on the map.
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Interviewer5:50
Let's talk about how you came to this deal and start at TPG. You grew up in Los Angeles, you went to Harvard Law School, you had a presence in Islamic law. Can you tell us about that experience and why Egypt and why Islamic law? Did you think you were going to be a scholar in this area?
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David Bonderman6:31
Well, these were the days when a lot of people, myself included, decided they didn't want to go into the army. I had the possibility of a deferment if I stayed in school or did something scholarly. At the same time, Harvard was looking for someone to study Islamic law. I spent a year in Cairo and a year in Tunis. This was when Nasser was still alive, and it was a pretty interesting place. So I spent two years studying in Cairo and Tunis. People gave me the grant, as possible, from Harvard Law School and the Ford Foundation. So I spent two years in the Middle East with the expectation of doing something when I returned. But when I returned, I couldn't find a job.
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Interviewer8:13
You came back to the US and started working with the US Attorney General. Can you tell us who this was and what did you do for him?
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David Bonderman8:24
The Attorney General at the time was Ramsey Clark, whose father, Tom Clark, had been on the Supreme Court. This was in the Johnson administration. I got a job as a special assistant at what's called the head of the Civil Rights Division. So I spent two years in the Civil Rights Division, mainly dealing with racial discrimination cases in Mississippi.
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Interviewer9:11
And then it suddenly became less of a good job, so you left to practice law. That's when you joined the firm in Washington DC, right?
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David Bonderman9:28
Yes.
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Interviewer9:28
And so it was then when you had to argue your case in the Supreme Court?
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David Bonderman9:37
That was five years later. I argued one case in the Supreme Court. It was actually the last thing I did before I stopped practicing law. In that case, my client, who was a guy immortalized in Supreme Court lore, had all his clients, and there was a fraud. Some of them bought in, so nobody could say exactly what was going on. But when the whole thing came apart, the SEC decided to prosecute Mr. Dirks for disseminating inside information when he tried to get the SEC to listen to this fraud, and the SEC wouldn't pay any attention to it. Anyway, it went all the way to the Supreme Court. I lost it in the administrative law judge's chambers, lost it in the DC Circuit, and won it in the Supreme Court. It was a great experience to be able to do that. Not all lawyers have that story to tell.
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Interviewer11:16
At that time, you decided to buy Continental Airlines, correct?
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David Bonderman11:26
I worked with Bob Bass for 10 years. Towards the end of that 10 years, the Continental deal was around. I hated the deal because I thought that no matter what happened, he would get vilified in the press. Either Continental would fail again and he would be thought to be the person who caused its third and final disaster, or it would be a success, in which case the pilots would all be angry. What happened in the major recession was about to happen, and he decided he didn't want to be in business anymore. He certainly didn't have anything to do with Continental Airlines. So my partner, Coulter, and I left, and we did the Continental Airlines deal ourselves. I always remember meeting with Claude Taylor, who was the chairman and CEO of Air Canada, our partner. It was nice to have somebody who had anything to do with it. I went up to Toronto to meet Mr. Taylor, who had agreed to put up the money. The good news is we're all authorized to go forward and put up the money. The bad news is Coulter and myself for the pardon, and Bob Bass isn't going to be in this deal. He looked at me and said, 'I never met Bob Bass, but I met you and I like you. Let the deal go. Get him.'
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Interviewer13:38
Up until this moment, you've been working in a lawyer's office, everything seems to be normal, and you call your parents and you tell them what you're doing. They ask you what you're doing, and you say, 'I'm buying an airline.' What did they have to say about that?
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David Bonderman13:57
They were perplexed. My father was in the business, so he understood.
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Interviewer14:11
For those in the audience who are not well-versed in finance, can you tell us what is the difference between venture capital and private equity? What are the important considerations?
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David Bonderman14:39
The risk, the time of the investments, the nature of the risk, although at the edges the two art forms blend into each other. But at their core, venture capital guys will take risks on new businesses where there is no track record of the management, quality of business, and your ability to affect change or to recognize a better business than the market sees. The nature of the businesses are such that to be a successful venture capitalist, you have to make many investments because most of them won't work. To be successful in private equity, you have to make most of them work, and most of the businesses work, otherwise you'll be out of business.
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Interviewer15:49
When you bought Continental, I remember this story that you needed somebody who knew how to run the business. You thought to become CEO when I became chairman, managed the board and the investment, and you understand the difficulty of turning around a business of 42,000 employees. It's like turning a battleship. It's hard to do that even if you put your own people in at the top. It takes a while for new methods to take hold.
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David Bonderman17:11
I don't remember that anymore, but in the old days, you'd get a free meal, so-called. The meal they served was a steak which looked like a pair of shoes. You couldn't cut it with a knife. Anyway, I took the platter and I put it in a Federal Express bag and I fed it to the CEO, saying, 'Is this the kind of meal that you really want to see?' And of course, the CEO fired the catering guy, who was no doubt on the take between Mexico and the US. But you have to do some things. In those days, there was no internet. They'd get a form letter back with no return address or name on it, so there was no one for them to be able to contact to follow up with their complaint. So we made them throw out the stationery and put new stationery in which was signed by the person who was responding. It upset the long-term employees no end that they'd have to take responsibility for making their own decisions about what to give somebody for a ticket or discount.
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Interviewer19:12
You have been successful, and I'm talking about pre-COVID. We've talked about how interesting it has been, but also how interesting it has been to deal with the CEO who is a very interesting person. Can you tell us a little bit about what Ryanair is, who the CEO is, and how do you see the airline industry moving into this post-COVID world?
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David Bonderman19:51
Let me talk about the latter first. The Europeans have taken a different view than the US. They shut down all traffic except for a few rescued flights, so they left the airlines with no capacity, no way to obtain revenue, but the expenses are still there. So the Europeans have put up funds, multiple billions of dollars, to give the airlines money to pay pilots and flight attendants and mechanics, so they don't have to lay them all off. The governments are basically paying the airlines. The US has done the opposite. They're forcing the airlines to fly, which is a way to keep the planes and others employed. What they should have done is what the Europeans have done, which is pay the pilots directly and don't make the airlines fly, which is just causing bigger losses. So that's what's going on at the moment. What will happen is that a number of airlines in Europe will go under. The stronger airlines will come out battered but okay. In Ryanair's case, they have four and a half billion dollars cash, so they're in a position to weather the storm better than anyone. Michael O'Leary is perhaps the best CEO of any company we've had, certainly one of the best. It also shows you the serendipity of it all, because he never set out to be a CEO of anything, let alone in the airline business. He was a junior accountant when the guy who then owned Ryanair, a guy named Tony Ryan, picked him to run what was then a very small Irish carrier with three or four planes. O'Leary took one look at the business that he'd been brought in to count the numbers on and concluded the business was going to fail. He switched the airline to a low-cost carrier, and it took off. The value of the airline went from about $12 million to about $18 billion at the high point. All along the way, O'Leary became legendary for his colorful and somewhat unprintable, often unprintable, advertising motifs.
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Interviewer23:47
Do you think this is a moment to back out of certain industries? What is the next wave of disruption? You've invested in very transformative companies that have defined industries. We've talked about the challenges of Uber, the postponed IPO of Airbnb. What lessons can investors and entrepreneurs learn so that they can adapt for the next wave of innovative companies? How do you spot them? What are your thoughts on that?
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David Bonderman25:12
I get a lot of business plans that cross my desk, or would read if I had one all the time. The question that's hard to judge is whether there is a business plan that will work and can you raise the funding to do it. There's no one good answer. There's a myriad of choices. It turns out that if you look at what's happened, the most successful venture firms are very few. You've got maybe a dozen firms that have been consistently successful. It's basically a judgment call. Some guys have been consistently successful and others have not. Most of us have not. The internet wave has brought a lot of people, most of whom fail. You don't hear about them. But a few people have been consistent. You've got firms like Sequoia and Andreessen who have made a great living on venture capital. Looking to the future, it's likely to be the case, but at bottom, it's all about taking risks.
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Interviewer27:10
Talking about media, it has gone through a dramatic transformation. What are your thoughts about the streamers, more specifically Spotify versus radio, Netflix versus broadcast TV and cable? What are your thoughts on that moving forward?
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David Bonderman27:40
It's going to be complete chaos for a while as the industry readjusts to the new normal. You've seen the difference between winners and losers. Look at Zoom, whose client base went from 10 million to 300 million. It's now the second biggest company in the world. Who would have thunk it? One thing is that all of those kinds of businesses are run by the same cohort. Malcolm Gladwell wrote a book about that called Outliers. There was an opening, and people who were innovative, young, and couldn't attach to anything else, children, and so you've got Google and Facebook. Whereas the people who should have done it, the incumbents, missed the boat.
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Interviewer29:15
I wanted to ask you, TPG has an investment in Ducati motorcycle, no longer. We were the word 'smart lucky,' but did you ever try to ride it?
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David Bonderman29:33
I did. We owned Ducati probably a dozen years ago now and ultimately sold it to BMW after fixing it. It was a great machine, marvelously made with Italian specialty. Every other year in Las Vegas, anybody who owned a Ducati was welcome to come. There was an affair with food and drink, which is better with Ducati than you might imagine. I rode a motorcycle from downtown out to the racetrack in Las Vegas, into the racetracks in North Las Vegas. That was my last venture on the Ducati, but it was a fun place.
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Interviewer30:47
What about Fender? You sold your interest in it.
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David Bonderman31:12
Let's talk about how you invest in the unknown. You were, or still are, a shareholder in Kite Pharma, which was bought by Gilead Sciences for $11.9 billion in an all-cash deal. I want to ask you how you came into this deal and why you decided to invest in something that was difficult to predict.
The brains behind the operation was Harry Beldon, who had started six companies, all successfully. Kite was actually a cure for blood cancer, called immunotherapy now, which was very much out of favor and not something that was easy to raise money for. So I helped Harry to start the company, which is how I got involved. We've done a lot of others together. I was the lead director once it went public. So that's one that started with an idea, which is not what we normally do at TPG. In fact, it wasn't.
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Interviewer33:11
What are the lessons of hiring and firing? What is the best way to hire and the best way to fire?
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David Bonderman33:24
The easy question is when is the best moment to fire. There's never a good moment to fire because it's a dislocation. But as George Roberts of KKR said to me when I asked him when we first went into the business, 'George, what's your secret?' He said, 'The secret is when you think you have a problem, you do. When you've finally figured it out, you'll find out that everybody else at the company knew it all along.' If you've tried to do a job and haven't succeeded, you have to step up and do it soon. It's always better than later. I've now forgotten the first half of the question.
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Interviewer34:23
It's good. Let's talk about success and wealth. Did you always plan to be wealthy? How was that process, and what is the secret?
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David Bonderman35:15
I never planned to be wealthy. Money was never part of the idea. I originally thought I was going to be an archaeologist. I worked for two summers as an archaeologist in college. It was only the need to stay out of the army that kept me in school and led me to be a lawyer first, businessman second. My advice to people is if they don't do it for the money, do it for the love of whatever you're doing, because you won't be successful, at least as a human being, if all you're in it for is the money. You have to do what you have a skill set for. The other point is that serendipitous opportunities come along by accident or just in the scheme of things. The real difference between successful entrepreneurs is knowing when to take the leap.
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Interviewer36:40
Give us an idea of what three principles hold true along your life that have been like a personal sense.
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David Bonderman37:13
Part of it is doing something unlikely or something you're good at. Surround yourself with people at least as smart or smarter than you, people you like. Remember that the person you want to take home to meet mom is not necessarily the person you want to have running your company. Don't confuse that with business acumen.
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Interviewer37:45
That's a great, difficult question. David, should billionaires pay more taxes, or should they pay their fair share?
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David Bonderman38:12
Yes, they should pay more taxes. That's why you have all this turmoil that we have here. Given the current administration, it's going to get worse before it gets better.
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Interviewer38:25
My last question has to do with the outlook of where we are. It's hard to make projections of what's coming, but some people speak about the new normal. What are your thoughts? What's coming? How can you think about the future where everything has changed so much?
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David Bonderman39:13
It's a very good question. Markets 50 years from now are going to look at these few years as something just as exceptional. This time, it's not caused by anything except the virus, which means it's harder to deal with. But there will be a new normal. The real short-term question is whether there's a second or third wave of the virus, which most pundits think there will be, which will cause unique dislocations. We already have 25% of the population in the United States on unemployment, which is higher than the Great Depression in the 30s. There's a lot of adjustment. The same kind of markets flying to safety. It makes sense to get out of the house. We're going to probably have more difficulties, or at least it has that potential. So it's very hard to predict what's going to happen, but one thing you know is that it's unpredictable.
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Interviewer40:33
Okay, thanks. I'm going to open it to the room. I have no idea how this is going to work, but I guess everyone kind of knew to mute themselves. If you want to ask a question, please go ahead.
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Audience Member41:12
We like the people as well, and of course it's going to have some challenges given the virus and the new normal, but so far so good.
Hi, David. Mano here from Madrid. A pleasure to listen to you. Thanks. You mentioned your environmental activities, initiatives, concerns. Could you share a little bit about how you're active on this front?
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David Bonderman41:52
Thank you for asking. I'm involved in anti-poaching efforts in Africa, supporting national parks, supporting judges and prosecutors to prosecute people who are caught poaching. I also do a lot in the Southwest, where I fell in love with archaeology in the 60s and worked as an archaeologist, as I mentioned before, before I decided to go to law school.
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Audience Member42:33
Thanks, David. Is there an investment or a particular leadership style that you admire?
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David Bonderman43:18
I would hope it's just not too serious. Everybody's got their own style, of course, and you find that in your CEOs. There's no right person. But by and large, I want to be not too serious about it and delegate a lot.
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Audience Member43:55
Hi, David. What is the most important quality for a CEO?
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David Bonderman44:11
The ability to motivate people. There's no particular personality. Some people do it with the whip, some people do it with a lollipop. But it's got to be the ability to motivate people and to engender trust. They say there's no single type of personality. Sometimes you'll find a guy or a woman who is a great CEO but not a very good person, and you have to learn to live with that.
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Audience Member45:10
I know that you have a view of what really works on the ground and what doesn't, who does really good marketing and who is really effective. Can you tell us how you came sensitized to the issue but also how you ended up choosing the organizations that you were going to support?
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David Bonderman45:35
I went to Africa the first time 50 years ago and kind of fell in love with the landscape and the people. We've been going back ever since. I've probably been there 50 times or more. As climate change changes the environment in which the animals live, it's a combination of taking care of the people involved but having an iron fist with poaching. So we started about six or seven years ago, started the Wyss Foundation in order to do this in an organized way. I recruited a guy named Roger Slick Eisen, who used to run Defenders of Wildlife, to put it together. Between us, we've done it and become probably the largest donor.
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Audience Member47:12
Michael Moore's documentary Planet of the Humans has been very controversial on our fossil fuel dependency versus green alternatives. Overall, I think the film leaves you with some loss of hope for a person that doesn't understand the powerful business interests. Do you think a change in the way we consume, the way we live, is possible?
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David Bonderman47:34
It's possible. The question is whether we'll do it. I think over time we're going to be forced to. The current administration is setting us back in every possible way in the United States. The same is true in Brazil. But we have to. There's going to be no air left.
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Audience Member48:10,
How do you see the sports industry, which depends on collaboration to both produce and consume the products?
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David Bonderman48:17
That's a very good question, one we've spent some time thinking about. Given the amount of money involved, particularly with the NFL, there's going to be some accommodations made, maybe for starters with teams with no spectators. But given the nature of the TV revenues, there's going to be sports. The NFL is planning to have a football game in September, with or without spectators, because of the power of the TV money. A fair amount of that will be in the media.
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Audience Member49:10
Carlos Alfaro from Los Angeles. CEOs today are evaluated for the decisions that favor the shareholders and the share price, while there is much less incentive to take decisions that help society and the environment. In your view, how should a CEO balance this?
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David Bonderman49:31
That's an interesting question because it's an issue that's just being raised. It used to be that corporate leaders were supposed to look out for all their constituencies. Then about 40 years ago, some conservative philosophers took over the field, and people began to believe that the only thing that mattered was the shareholder. That's the jurisdiction of most of corporate America. I think that's an issue you're going to see a whole lot of, and a whole lot of change driven by US pension funds. There'll be a whole lot of change in these issues.
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Audience Member50:33
A question from Memo Chavez in Mexico City. What will be the destiny of your wealth after you are no longer on planet Earth?
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David Bonderman50:43
My kids and my work will have to decide what to do with it. It's a chore, not a pleasure.
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Audience Member51:10
Do you see STX being acquired by a big player or a bigger player like Apple?
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David Bonderman51:20
It could happen.
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Interviewer51:27
We have like five more minutes if we get other questions coming in. What's your take on the cannabis legalization at a federal level, and do you think it will happen before the election?
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David Bonderman51:42
Zero chance of it happening before the election. It will happen someday, but not before the election.
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Audience Member52:11
What's your idea of perfect happiness?
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David Bonderman52:21
No one has ever asked me that question before. I suppose being 35 and knowing what I know now.
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Audience Member52:36
STX has some ups and downs. Do you see them being acquired?
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David Bonderman52:48
It's just like any other company.
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Audience Member53:10
What is the possibility of using VC-type advanced technologies to make private equity industries run more efficiently, and what are the advantages and disadvantages?
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David Bonderman53:28
I don't understand the question.
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Interviewer53:31
Okay, so we'll move on to the next one, and we can have that person re-ask.
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Audience Member53:41
Speaking of management styles, would you share your opinion on Elon Musk's style, at least the public one, like quitting today that Tesla shares are overpriced?
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David Bonderman53:53
Elon Musk is a force of nature. He's a brilliant guy in a lot of respects. One of them is that he will get in trouble again if he doesn't pay attention to the rules. In the corporate and engineering sense, that has served him well, but not with the SEC.
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Audience Member54:26
I'm 35, and I want to know what do you know that I don't?
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David Bonderman54:30
That's a longer conversation. We've looked at a lot of reasons, a lot of deals in a lot of places, and you get a feel for what works for you and what doesn't work for you.
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Audience Member55:11
What steps would you take now in anticipation of additional waves of the pandemic and more disruption to come?
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David Bonderman55:20
I would pay some attention to the science. I would look to testing in places. It should be making use of the testing and not worry about personal popularity. Of course, in so many fields, you'd reverse what these guys have done.
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Interviewer55:48
Last question. There are two more minutes. How have your failures shaped you?
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David Bonderman56:15
Every failure is a learning situation. You make some mistakes, you learn something that you didn't know beforehand, but also not to be too scared by your failures. If you don't take any risks, you can't fail, but if you don't take any risks, you can't do well either. So it's a question of how you examine your appetite for risk. As you get older, your risk appetite tends to go down.