E430: Goldman Sachs’ Michael Bruun on AI, Private Equity & The War for Talent

How I Invest with David Weisburd

Michael Bruun, Global Co-Head of Private Equity at Goldman Sachs, discusses how talent—especially AI-enabled leadership—is becoming the key

Key takeaways

• AI's real power lies not in technology alone but in how AI-enabled talent accelerates business transformation.
• The war for talent is intensifying, with exceptional leaders acting as 'talent magnets' who bring networks and innovation.

Main topics

• AI adoption in private equity
• Talent as a competitive advantage

Notable quotes

It needs to come from the top. The CEO needs to make it well understood by all employees that AI is an absolute must.

Giving them talent is what really moves the needle.

Conclusion

In an era of rapid technological and geopolitical change, the most sustainable edge in private equity lies not

Transcript preview

Speaker 1 (0:00) It needs to come from the top. The CEO needs to make it well understood by all employees that AI is an absolute must and it's something that will change the way we do our business and we embrace that change. There needs to be some experimentation. If humans are not allowed to experiment, it is unlikely that we will get to the most relevant and most creative solution. CEOs are also faced, and this might at times be uncomfortable, with the task of deciding whether the rest of their XCOM or leadership team is actually ready for this transformation. The war for talent is bigger than it's ever been. If you can get the right people in with the right change mindset, They can move so much faster because they are AI-enabled. Speaker 2 (0:49) Michael, you're the global co-head of private equity at Goldman, where you've been for nearly 23 years. And when you were earlier on in your Goldman career, you were influenced by Lloyd Blankfein's saying about having skin in the game. Why was that so influential for you? Speaker 1 (1:05) Goldman Sachs services its clients in a multitude of ways. It provides advice. It facilitates financings. It's a very large market maker in multiple markets, stocks, bonds, commodities. And then it's a principal investor. And I think what Lloyd meant when he mentioned skin in the game was that we can be several things for clients and give an even more comprehensive service. So not only provide advice and provide financing, also at times put our money where our mouth is and invest alongside clients. And that gives a very unique and trusted. relationship. And it's something that is unique to our firm. Very few firms can do it and no other firm does it at the scale of Goldman Sachs. And for those of us who have read his most recent book, Streetwise, you'll see that he specifically refers to this element and some of the unique characteristics of Goldman Sachs. How Speaker 2 (2:02) do you build the right incentives within your team? Speaker 1 (2:05) Ultimately, we get judged on our investment performance. So it's incredibly important that our incentives are aligned with investment performance. Like most other private equity firms, you receive a combination of annual compensation, and then you have a lot of your ultimate wealth creation or hopeful wealth creation tied to carry in the fund so that we are really aligned. And then we're also asking our investors to invest alongside us in the funds such that, again, we put our money where our mouth is. This is back to where we started. This culture of being a principal both with the balance sheet of Goldman Sachs, but also with our colleagues capital, but certainly also our own capital. We think that carry is important to incentivize great investment outcomes, but we also think that you need to have a lot of skin in your game at the most personal level. Speaker 2 (3:04) You operate in the core middle market, $500 million to $2 billion deals, the most competitive part of the middle market, and you have some very formidable competitors. How do you out-compete them when it comes to the best assets? Speaker 1 (3:18) You're right. We have formidable competitors. We have been able to do well ourselves by... Activating Goldman Sachs. Nobody else has Goldman Sachs as their wingman or wingwoman in their investment strategy. I think we do that in a multitude of ways. We do the network piece that we already talked about, which is fantastic for sourcing and it's fantastic for value creation. In addition to that, we have one of the largest operating groups in our part of the market. We have more than 110 operational partners. that drive value creation in our strategy. And then we have insights beyond what most firms see. We're 45,000 employees at Goldman Sachs. We are in most markets around the world and we get a lot of signals and those signals float back into our business such that we can navigate even the most complex operational environments, environments like the ones that we are seeing right now with very meaningful geopolitical uncertainty and also a much more blurry. macroeconomic picture. We spoke about the network effect. We haven't spoken much about our value accelerator. This is something that we've built over the last 10 years. We felt that we needed to have very, very strong operators drive. outcomes in our part of the market. It's something that you have seen in mega buyout, but we felt, why don't we take mega buyout operational resources and bring them in to the mid market? How could you do that? Again, Goldman Sachs has a ton of relationships to senior executives who maybe normally would operate in a mega buyout context, but actually felt compelled to come to us, to our part of the market, because it was an opportunity to stay with Goldman Sachs, an institution they probably work with in a different context. Maybe they advised them, maybe they financed them at other parts of their career. And now they finally had an opportunity to actually make a real impact from an operational perspective. And we chose, and each firm does this in their own way, but we chose to do this through what we call centers of excellence. What Speaker 2 (5:19) you call areas of excellence, it's such a trend I see across all private equity firms, which they take somebody that a middle market. company could never hire. They just don't have the gravitas, even if they could pay them enough. And sometimes these companies are in remote locations, like my hometown, Indianapolis, Indiana. Speaker 2 (5:39) Goldman takes one of the key talent in that space and then fractionalizes that person across multiple companies. And now suddenly they might have a 10, 20 % access to this talent that they couldn't recruit at this phase of their company. Speaker 1 (5:53) That's a good way of expressing it. But I would say that talented person, that talented executive usually has a network. He or she has a network. And so they will bring in even more talent. They're a talent magnet. That's an even better way. I might incorporate that into our playbook. They are indeed talent magnets. First, they open the eyes of the existing management team. Sometimes we'll have to do changes to the existing management team, but for certain, those management team will see what good looks like in specific areas of the value creation playbook. That's probably the most powerful thing that you can give a company. I mean, giving them a new customer. That's very powerful or giving them a great introduction, giving them a new supplier relationship. That's pretty powerful, but giving them talent is what really moves the needle. We Speaker 2 (6:43) call this at our firm, putting a body at a problem. Everybody's extremely busy. So if you come to me and you say, hey, I got this AI stack that could really improve your business. I may intellectually agree with you and you might be incredibly credible and make a really good pitch, but. An hour later, I'm going to be distracted by my next task. And now I go on to other priorities. But if you recruit a top person in that space to me, now it's somebody's entire job to deal with that all week long. And that actually compounds ideas, though sometimes sexy, though really interesting and maybe even empirical. Speaker 2 (7:21) don't compound as well as talent. I Speaker 1 (7:23) agree with you. And one thing is theorizing of all the things that we could be doing, but putting a great person behind it, somebody who's maybe let companies or let big functions in companies so you can actually get the throughput and you can get the followership from the portfolio company is incredibly important. I see that not only on the frontline stuff. the fancy stuff in sort of like the tech stack or some of the supplier relationships, these things are equally important. Some of the things that we may as customers of some of these companies don't see day to day, this is where some of the magic really happens. Just imagine the difference between having access to the greatest LLM vendors in the world right now versus not having access or during COVID. having access to the most important supplies that you needed to produce your product or produce your service. Getting the right talent, getting the right network effects around some of this can really change the trajectory of a company at this moment in time. And so we have actually noticed that our playbook works the best in volatile times and it's been pretty volatile. for the last several years. And so having senior leaders who have seen a lot, who's used to volatility, is used to making decisions around your portfolio company is incredibly important. Speaker 2 (8:43) Double click on that. Why Speaker 1 (8:45) does it Speaker 2 (8:45) work better Speaker 1 (8:46) during volatile Speaker 2 (8:46) times? Speaker 1 (8:47) Because you need to make decisions faster and those decisions needs to be made on a sound set of observations and based on a lot of experience. And so. Either you've gone through a crisis or you haven't gone through a crisis. If you've gone through one crisis, you are better prepared to go through the next crisis. And the world has gone through multiple iterations of very high volatility in the last few years. And this is where I really see the leaders step up. We learn more as humans when we're in volatile times. And those humans who have gone through the volatility can really step out. Best example right now, we're faced with maybe the most consequential moment in private equity. driven by AI. Either you face up to that challenge and that opportunity, or you don't. And having leaders around your business who may not have experienced AI because no human has really experienced AI until it's all like all of a sudden arrived. But they have seen big seismic changes in tech roadmaps. They've