Vistria’s Marty Nesbitt on his friendship with Obama and what he learned from the Pritzkers

In his interview with Bloomberg, Nesbitt discussed his friendship with former president Barack Obama, talked about Vistria’s best and worst deals and shared the most common mistakes investors make. He also explained challenges facing Black professionals in the private equity world.

Private equity firms have to be more strategic when considering prospective deals, given fierce competition for the few companies on the market, said Martin Nesbitt, co-founder and co-chief executive officer of The Vistria Group.

“You have to be very disciplined and selective and pick businesses that you know a lot about, where you think you can systematically create value and that you have confidence in over the long term,” Nesbitt said on an episode of Bloomberg Wealth with David Rubenstein.

Private equity-related deal volume declined about 30% between the first quarters of 2022 and 2023, according to PricewaterhouseCoopers LLP, which cited macroeconomic turbulence, geopolitical uncertainty and challenging debt markets.

Sellers are less likely to put their companies on the market at a time when rising interest rates make it difficult to justify high prices, Nesbitt said. The few deals available come at steep prices, and he suggested that it might make sense to pay more cash for companies upfront.

“We will over equitize businesses in this environment and worry about financing them to their capacity later when the debt markets are a little bit more stabilized,” Nesbitt, 60, said of Vistria’s strategy. “It’s tougher, but you have to have an angle. You have to have a network. You have to have a systematic way to create value.”

Still, he acknowledged Vistria isn’t immune from the fundraising challenges pervading private equity. “It’s taking us a little longer to raise capital, but I think we’ll get there,” he said.

The Columbus, Ohio native co-founded The Vistria Group with his friend Kip Kirkpatrick in 2013. The firm, which manages about $10 billion, focuses on mid-market buyouts in health care, education, and financial services and is expanding into real estate and credit. Chicago-based Vistria, which also has offices in Dallas and New York, employs about 95 people.

Nesbitt previously co-founded The Parking Spot with former Commerce secretary Penny Pritzker and worked at the Pritzker Realty Group LP and at LaSalle Partners — now Jones Lang LaSalle Inc.

In his interview with Bloomberg, Nesbitt discussed his friendship with former president Barack Obama, talked about Vistria’s best and worst deals and shared the most common mistakes investors make. He also explained challenges facing Black professionals in the private equity world.

“There’s a focus on providing opportunity for people of color to enter this industry. But that opportunity sometimes is constrained,” he said. “They let you in through emerging-manager programs. But when you get a certain size, you’re no longer eligible, and you hit a ceiling.”

The interview, which was filmed on June 20 in Chicago, has been condensed and edited for clarity.

David Rubenstein is an investor in Hunter Point Capital, which acquired a stake in Vistria in 2022.

Today you’re managing roughly $10 billion. How are you going to expand to another $10 billion?

We have a thesis that at the intersection of public and private interest, there’s a value proposition that’s really not reflected in the marketplace. We want to stay focused on investing in those areas. We do health care, education, and financial services now, but there are probably other areas in the economy that fit that profile, and we want to stay true to that.

Real estate, for example, is a place where we think we can make a real difference. Think about affordable housing, workforce housing – ways to make an impact in the community by investing in private capital in a thoughtful way.

Tell me about your background.

When I was at LaSalle Partners, which is currently JLL, we went through this real estate recession in the early ‘90s, and the senior people at the firm said, “Let’s do a retrospective on all these different asset classes to see what happened.”

And when I did that, I recognized, “Wow, there were a lot of reasons why I liked the parking assets better than I did office and retail and industrial.” So I started really noodling on the differences between those asset classes and came up with a rationale to start a business in the parking space.

I wrote this business plan, and I shared it with the firm and said, “Look, this is what I want to do.” They liked it and supported it, and we started trying to raise capital around it. It was a tough time to raise capital in real estate. I crossed paths with Penny Pritzker, who later became our secretary of Commerce, and she liked the idea, and she and I went off on this adventure together and built a real estate operating company in the parking space called The Parking Spot.

It’s probably a $1.5 billion business at this point. It’s owned by a private equity firm. And that began my transition to private equity.

When he was elected president, Barack Obama was said to be best friends with you. I assume you’re still good friends. Was that a plus or a minus in building your firm?

He handled himself as president with grace and integrity. He always put the interests of the American people ahead of his own or anybody else’s. People valued that, so I think there is a halo associated with being the friend of a person who conducted himself in such an admirable way. Even people who disagreed with him trusted him, knew he was being honest and wanted to do the right thing.

I think, broadly speaking, that helped. Now on a micro-level, from circumstance to circumstance, sometimes maybe it cuts both ways. But I’d say, “How could you not benefit from being associated with someone who’s conducting himself in such an admirable way?”

Did you get a lot of prominent Republicans saying they wanted to invest with you, or not so much?

We have a lot of prominent Republicans that are affiliated with Vistria, are advisers to Vistria. What we found is, around these certain ideas, we all share the same values. We have a bunch of people around the firm that share the same values as we do about how we invest capital and how we want to make the world a better place by doing it.

When you look at a deal, what are the things you look at to decide if you’re going to go forward?

We try to be very proactive in the way we invest. We spend a lot of time developing themes behind which we want to invest. So we leverage our deal teams, our operating and advisory network to think very carefully about the dynamics in the three industries we invest in and where we want to be with our capital over the long term.

We become very focused on those themes. When a deal comes to the investment committee, we better have a theme. We better have an operating partner and advisers that know a lot about the business. And we better have a relationship with the management team and an angle to sort of systematically create value.
Otherwise, we’re not doing the deal.

Generally, people who invest in buyout funds are looking for net internal rates of return of 16%, 17%, 18%. Is that roughly what you’re shooting for?

No, we try to underwrite three times our money in five years, so 25% internal rate of return. I think it’s easier to do in the middle market, where with the right resources, strategy, a little elbow grease, you can outrun the competition. We’ve exceeded those expectations on most of our funds.

Give me an example of the best deal you’ve done where you exited and you did extremely well. Was it four times your money, five times your money, or better than that?

We’ve exceeded our return thresholds on every deal we fully exited. We made an investment in an education business called Penn Foster, which basically was an online high school completion company for students that, for whatever reason, had difficulty getting through high school on the traditional path.

We leveraged technology to make the business more efficient, create better outcomes, and better persistence among students. We leveraged the need for big companies in the country to have access to well-prepared entry-level employees and created a business that was worth a lot more than it was when we bought it and made a really, really good return.

We sold it to Bain, which, by the way, sold it and did pretty well on it themselves.

What’s the worst deal you’ve ever done?

There have been a bunch that have been challenging. We bought a company in the financial services space, which focused on making working-capital loans to small businesses. We were trying to figure out how to make capital available to Main Street businesses in a more affordable way.

Had a nice platform, invested in technology to do it pretty efficiently, and had the flywheel going where we were making more and more loans and setting records every month.

And then COVID hit.

It’s harder to raise money for private equity today because some people are over-allocated and also interest rates are higher. How hard is it today to go out and raise private equity dollars?

Yeah, it certainly has gotten more difficult than it was in the last five years. Ten years ago it was really hard for us because we’re a new firm. The equity markets have that denominator effect for a lot of capital allocators, and that makes it hard for them to commit more to private equity.

But we have a niche, very focused strategy. And we’ve had some success. The industries we focus on are pretty resilient.

Were you able to convince Barack Obama to be an investor?

We don’t talk about who our limited partners are, but he’s obviously supported what we’re doing and believes in it.

You could have had him be an adviser to your firm. Why did you choose not to do that?

I had built a reputation and a career as an entrepreneur and an operator. Kip had his own reputation as an investor. We really felt that we had enough going for us, and that we didn’t want people to think this was something about politics.

Suppose somebody came to you and said, “I have $100,000, which for me is a meaningful amount. What should I do?” What would you tell the person?

If people have a long horizon in life, there’s no better place to put your money than in debt and equities and public markets in the US.

What’s the best investment advice you’ve ever received?

I learned a lot from the Pritzker family.

No. 1 — Only do business with people you like. There have been one or two times that I didn’t follow that advice, and every time, it ends up being a mistake.

No. 2 — They used to have a little saying in their family that running a business is like being locked in a room with no doors and no windows. You, as an entrepreneur or operator, have to find the hidden door that’s going to create, open up access to value.

What do you think is the most common mistake investors make?

Just because you pay a low price doesn’t mean you didn’t overpay. And just because you pay a high multiple doesn’t mean that you overpaid.

People make the mistake of thinking that value is just the price, but there are a lot of subtleties to creating value in this business that you have to be acutely aware of and engaged in.