Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285)

Episode Summary

Executive Summary: Sachin Kajuria explains why he wrote 2 in 20: to demystify private equity for a broader audience while offering a constructive but realistic insider’s critique. He highlights the industry’s strengths—alignment, information advantages, and adaptability—while calling for better communication, greater value-sharing, and broader education as private equity becomes mainstream and more accessible.

Main Topics: Why Kajuria wrote 2 in 20 (Priority: 5/5): He wanted to give non-specialists, especially people with pensions or retirement plans, a baseline understanding of private equity from both GP and LP perspectives. Core strengths of private equity (Priority: 5/5): Kajuria argues the best firms act like principals, build durable knowledge libraries, and pivot well over long time horizons, which helps explain persistent outperformance. What differentiates top firms from average ones (Priority: 5/5): He says culture, especially under stress, determines whether firms truly deliver alignment and outsized returns or simply use the standard 2 and 20 model. How deals are sourced and researched (Priority: 4/5): He challenges the myth of fully proprietary sourcing, emphasizing long-term sector work, multi-year research, and being early enough to win before competitive processes begin. Industry evolution and democratization (Priority: 4/5): Kajuria sees private equity spreading across more sectors and investor types, with retail access expanding through smaller tickets and more tailored products. Current opportunity set and portfolio construction (Priority: 4/5): He favors hybrid capital, smaller opportunities, and cheaper assets in a higher-rate world, while stressing careful manager selection and avoiding automatic re-ups. Limitations, criticisms, and needed changes (Priority: 5/5): He calls for better public messaging, more profit sharing across employees, and more investor education so private equity is understood like public markets.

Key Arguments: Private equity is fundamentally a people business; no formula or ETF can replicate the judgment, temperament, and alignment of top GPs. The best firms think like owners, not advisors, and will fight to repair bad deals rather than walk away. Persistent outperformance comes from culture, especially the day-to-day willingness to do blocking and tackling under pressure. Scale matters, but only because it amplifies information, cross-strategy learning, and industry monitoring; people and process still matter most. Proprietary deals are usually not truly hidden; the real edge is being early in research, relationships, and preparation before a process formalizes. Private equity is becoming mainstream across more industries and should be understood by everyday investors, not just institutions. Retail democratization will likely create different product structures and risk profiles rather than simply repackaging institutional funds. In a higher-rate, lower-leverage environment, hybrid capital and cheaper assets offer attractive risk-adjusted returns. Investors should be more selective about re-ups and consider whether legacy strategies still fit the current environment. A major shortcoming of the industry is poor communication with the public and insufficient sharing of gains beyond the C-suite.

Data Points: Experience in private equity: 25 years - Kajuria describes himself as a 25-year veteran and former Apollo partner. Family office role: LP across multiple firms - He now invests through his family office after leaving Apollo. Private markets size: 12 odd trillion on its way to 20 trillion - He cites the scale and projected growth of private markets as evidence of their economic importance. Ticket sizes for access: $50,000, $20,000, and $10,000 tickets - He notes that access to private equity is moving toward smaller, more retail-friendly minimums. Target IRR for hybrid capital: 15% IRRs - He describes hybrid capital/tactical opportunities as attractive even with lower downside risk. Potential downside in current credit offerings: 10 plus percent risk vs. 6-7 return - He argues some credit fund offerings do not compensate investors adequately for risk. Time horizon for research: 2, 3, 4 years - He says sector research and relationship-building can take years before a deal even appears. Private equity firm growth examples: Billion-dollar deals and $5-10 billion deals - He says scale plus information breadth can place firms in the 'Champions League' of private equity.

Pivotal Quotes: "They really do think like principals, not like advisors." — Sachin Kajuria: On the strongest private equity firms and their alignment with LPs. "It’s a people business, and therefore you have to understand the traits and DNA of those people because it’s those people that are going to make the 2 in 20 work or not work." — Sachin Kajuria: On why culture and individual judgment drive performance. "It’s not the critic that counts, it’s the person in the arena." — Sachin Kajuria: He references the Roosevelt quote his parents emphasized as a lesson about effort and resilience.

Implications: Listeners should see private equity as a mainstream, active asset class whose outcomes depend heavily on people, culture, and timing. For the industry, better transparency, education, and broader value-sharing may be key to sustaining legitimacy and growth.