The Business Builder: New Mountain Capital's Steve Klinsky

Episode Summary

Executive Summary: Steve Klinski traces his path from a Detroit family retail business to pioneering private equity at Goldman Sachs and Forstmann Little, then founding New Mountain Capital. He argues PE has evolved from debt-driven financial engineering into disciplined business building in durable sectors, with AI and private credit as major current opportunities. He also highlights education reform as a personal mission.

Main Topics: Early career and the origins of a private equity mindset (Priority: 5/5): Klinski explains how growing up around his family’s clothing business and entering graduate school during the first LBO wave shaped his interest in business, law, and investing. The evolution of private equity over 45 years (Priority: 5/5): He contrasts the early cottage-industry era of highly leveraged deals with today’s larger, more operational, sector-specialized industry focused on value creation. Why he left Goldman and what he learned at Forstmann Little (Priority: 4/5): Klinski describes moving from advisory work to ownership, then gaining experience in a glamorous but dysfunctional PE environment that reinforced his preference for disciplined business building. New Mountain Capital’s strategy and sector selection (Priority: 5/5): He outlines New Mountain’s approach: invest in defensive growth sectors, develop deep industry expertise, and use a multi-tool operating playbook to improve companies over time. AI, technology, and operational value creation (Priority: 4/5): Klinski says AI is being applied across portfolio companies to improve margins, automate harder tasks, and protect competitive position, while also benefiting infrastructure businesses tied to data-center growth. Private credit and flexible capital solutions (Priority: 4/5): He explains how New Mountain uses its private equity knowledge to underwrite private credit, net lease, non-control equity, and continuation vehicles, often within the same industries it knows best. Education reform and philanthropy (Priority: 4/5): Klinski discusses his long-standing commitment to education, from after-school centers and charter schools to Modern States, which helps students earn college credit for free through CLEP exams.

Key Arguments: Private equity has shifted from a financing technique to a business-building discipline, with industry expertise and operational improvement now more important than leverage alone. New Mountain’s edge comes from focusing on non-cyclical, defensive growth sectors where it can build durable advantages and improve businesses systematically. A strong CEO matters, but the best indicator is prior success and fit within a specific industry context; the firm is highly hands-on in evaluating leadership. AI should be treated as a practical operating tool, applied function-by-function across portfolio companies to raise margins and improve service quality. Private credit is attractive when paired with deep equity knowledge, because the firm can lend to businesses it understands well and manage downside risk more effectively. Continuation vehicles are an important evolution because they let firms keep and compound their best assets rather than forcing a sale after a fixed holding period. Education access is a major social issue, and Modern States is designed to reduce cost and time barriers by offering free courses and paying CLEP exam fees for students.

Data Points: Assets under management at New Mountain Capital: approximately $60 billion - Described in the introduction as the firm’s current scale Years at Goldman Sachs: 1981 to 1984 - Klinski’s early career before joining Forstmann Little Years at Forstmann Little: 1984 to 1999 - He spent most of the 1980s and 1990s there before founding New Mountain First New Mountain investing year: January 2000 - He says the firm’s first money was invested at the start of 2000 New Mountain anniversary: 25th anniversary - He notes 2025 marks 25 years of actually investing money Number of private equity firms in the early 1980s: about 20 - He contrasts the tiny early industry with today’s scale Number of private equity firms today: 5,000 - Used to illustrate how much the industry has expanded Goldman Sachs merger department size when he joined: 12 people - Shows how small the firm and the M&A business were at the time Goldman Sachs first proprietary deal size: $12 million - Trinity Paper Bag acquisition, one of the earliest PE-style deals he worked on Goldman Sachs partner capital invested in that deal: $500,000 - He says partners’ money was used in the paper bag company acquisition KKR assets in the early 1980s: $400 million - He cites KKR as the largest PE firm at the time Forstmann Little assets in the early 1980s: $200 million - He describes it as the second-largest firm in the world then 10-year Treasury yield when he started at Goldman: 15.84% - He uses this to emphasize the high-rate environment of the early 1980s Prime rate in the early 1980s: over 20% - Illustrates the cost of borrowing during his early career General Instrument value growth: $1 billion to $20 billion - Example of a major tech/business-building success at Forstmann Little Blue Yonder / Red Prairie value growth: $600 million to over $8 billion - Case study used to show operational value creation in PE New Mountain team size: 300 people - He contrasts this with the much smaller Forstmann Little team Sectors staffed at New Mountain: 12 sectors and 25 subsectors - Shows the firm’s specialization model Companies reviewed annually: 1,000 companies - He says the firm looks at about 1,000 companies to buy eight Companies acquired annually: 8 - Illustrates selectivity in deal-making Portfolio jobs created net of losses: over 70,000 jobs - He cites this as part of New Mountain’s social dashboard Private equity enterprise value creation: $100 billion - He says the firm has created this much enterprise value through PE funds Private equity loss rate: 0.2% - He cites this as evidence of disciplined underwriting Private credit entry point: 2008 - New Mountain began private credit strategies during the Great Recession Private credit return example: over 30% - He says first-lien debt bought at distressed prices could generate this return to maturity First-lien purchase price example: 60 cents on the dollar - Illustrates distressed-credit opportunity in 2008 Modern States usage: 800,000 people - He says the free education platform has reached this many users without advertising Free courses given away: 250,000 courses - Modern States’ scale of educational access Equivalent free years of college: 25,000 free years - He translates course usage into college-time savings Student debt in the U.S.: $1.7 trillion - He cites this as a major reason education affordability matters CLEP subjects: 32 subjects - Modern States focuses on these exam-based credit pathways Data-center technician company growth: 50% organic growth last year - Example of infrastructure-services investing tied to AI/data-center buildout

Pivotal Quotes: "private equity has gone from a form of finance into a form of business" — Steve Klinski: His summary of how the industry has matured from leverage-driven deals to operational value creation "We call our shots pretty clearly. There's no single tool that we use." — Steve Klinski: Explaining New Mountain’s multi-pronged company-building approach "If you have enough time in this podcast, I was a first year associate." — Steve Klinski: He introduces the story of nearly being fired after losing confidential papers, leading to the advice to get a bigger briefcase

Implications: The conversation suggests PE winners will be firms that combine sector depth, operating discipline, and AI-enabled improvement. It also signals growing importance of private credit, continuation vehicles, and mission-driven capital deployment in education and infrastructure.