Private equity industry lessons from John Danhakl of Leonard Green

John Danhakl, a managing partner at the private-equity firm Leonard Green & Partners, has helped launch seven funds over the past 30 years.

Each of the funds has either already doubled its initial investment, or is on pace to do so, according to Danhakl. He also says they've seen an average gross return of 35%.

As part of a panel discussion at the recent Milken Institute Global Conference, Danhakl shared the nine most important lessons he's learned from his three decades of experience.

Visit Business Insider's homepage for more stories.

When you spend 30 years in an industry, it's natural to develop some reliable tricks and techniques.

And when you've had as much success as John Danhakl — a managing partner at the private-equity firm Leonard Green & Partners — those insights start to be worth their weight in gold.

Leonard Green, which has roughly $24 billion of assets under management right now, has been a beacon of strength in the private-equity space over the past three decades. The firm has launched seven funds during the period, the most recent of which raised $9.6 billion.

During the recent Milken Institute Global Conference, Danhakl told a packed room of attendees that each of Leonard Green's seven funds has more than doubled their money invested — or is on pace to do so. He estimated that the firm has generated an average gross return of about 35% during the period.

No matter how you slice it, that's otherworldly performance. It's also the reason why Danhakl was invited to share his wisdom with a large conference audience. After all, the panel was called “Common Sense from Uncommon Investors” — and Danhakl's outsize returns are about as uncommon as it gets for investing.

And while the only way to truly absorb the life lessons that result from that experience is to actually do the work for decades, Danhakl was happy to share wisdom with the Milken crowd.

He provided a nine-part list of lessons he's learned from 30 years in private equity. They are as follows, with additional commentary provided for select sections:

(1) Public markets date their investments. We marry ours.

“An example of this is, if you'd have bought Barnes & Noble after the crash, you could've made some money on it, for a period of time,” Danhakl said. “Had we bought Barnes & Noble after the crash, we would've lost everything. Our investments are made over a long period of time.”

(2) What you buy is more important than the multiple you pay.

“I've never seen price make a bad deal a good deal, ever,” Danhakl said. “And truthfully, I've never seen price make a good deal a bad deal. I've seen price make a good deal kind of a mediocre deal.”

He continued: “If all of the transactions we do either end up in the great-to-mediocre camp, we're going to do just fine. That's why we've done as well as we have.”

(3) There's no such thing as a must-do deal.

“This comes back to the benefit of experience over youth and energy,” Danhakl said. “Young people want to get things done. What happens is, you're target-focused, and a little bit more starts to be OK.”

He continued: “A lot of our younger people think 'this is the one I have to do.' And I just say, no, it isn't the one. There will be other deals. The key is avoiding making mistakes. That's kind of the point.”

(4) We earn our income from the deals that work. We learn the business from the deals that don't.

“The rhythm of the private-equity industry is slow,” Danhakl said. “If you've been in the private-equity industry for 5-6 years, you've probably done 2-3 deals, and you don't even know if they've worked.”

He continued: “The question is: How do you learn the business？ At Drexel Burnham, we were closing a deal a month. We were the financing, and other folks were doing the deals. That rhythm showed us what worked and didn't work.”

(5) A good contract doesn't make a lousy investment successful.

(6) We all know what leverage does for an investment. Consider also what leverage does to an investment.

(7) Hope is not an investment strategy

(8) Brilliance and toughness are respected. A sense of humor and a positive perspective are valued and appreciated.

(9) The most effective place for an iPhone is in your pocket.