Feb 13, 2023 · 1h 8m · capital-allocators
José E. Feliciano – Flexible Private Market Investing at Clearlake (Capital Allocators, EP. 297)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews José E. Feliciano, co-founder and managing partner of Clearlake Capital, exploring the firm's growth from a seed-funded startup into a $75 billion private investment powerhouse. Feliciano details Clearlake's hybrid all-weather investment mandate, proprietary OPS operational framework, pioneering continuation vehicles, and strategic acquisitions such as Chelsea Football Club.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 19.5% of the talking time here. How this is scored →
Ted as informed peer 4.4 Guest teaching 5.2 Guest disagreement 0.4 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 31:15 Jose skewers lazy 200-page pitch decks
Jose bluntly criticizes investment professionals who hide behind bloated 200-page presentations and ungrounded up-and-to-the-right projections instead of clear downside analysis.
Hardest push from Ted ▶ 20:09 Ted challenges hybrid vs. specialist modelTed directly pushes Jose to defend the potential weaknesses and external confusion caused by Clearlake's non-standard hybrid structure.
Biggest teaching moment ▶ 50:30 Redefining single-asset continuation fundsJose educates the audience on flipping the conventional view of continuation vehicles from distressed tail assets to multi-billion-dollar compounding platforms.
Ted holds their own ▶ 46:50 Ted connects GP cash flow constraints with European waterfallsTed displays sophisticated institutional knowledge by framing the liquidity needs driving GP stakes deals in the context of European carry waterfalls.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Early Career: Engineering to Wall Street | 3 | 4 | 0 | 0 | Ted prompts Jose to walk through his background transitioning from aerospace engineering to Wall Street and startup operations. Jose explains why spreadsheet-level financial modeling pales in comparison to managing real operational friction like payroll and people. | |
| Dot-Com Bust to Special Situations at Tennenbaum | 4 | 5 | 1 | 0 | Ted inquires how Jose's operational dot-com failure informed his investing style at Tennenbaum. Jose outlines the countercyclical dynamics between traditional buyouts and special situations that inspired Clearlake's thesis. | |
| Fund Structuring and Capital Recycling Mechanics | 5 | 6 | 1 | 1 | Ted probes on how to structure funds to handle both illiquid buyouts and shorter-duration special situations. Jose explains the mechanics of capital recycling that permit secondary credit trading without sacrificing traditional PE horizons. | |
| Building Hybrid Investment Capabilities | 4 | 5 | 0 | 0 | Ted asks about the organizational capabilities required to blend credit and private equity skill sets. Jose details why Clearlake grooms talent from junior levels rather than hiring laterally from single-discipline firms. | |
| Flexibility vs. External Market Perception | 5 | 5 | 1 | 1 | Ted compares Clearlake's cross-disciplinary approach to generalists versus specialists. Jose cites Warren Buffett's unconstrained mandate while noting how market perception sometimes pigeonholes them. | |
| Fundraising Challenges and LP Alignment | 4 | 5 | 1 | 0 | Ted asks about early capital formation hurdles for a complex strategy during the GFC. Jose discusses refusing LP demands to cap tactical flexibility, choosing lower AUM over compromised strategy. | |
| Core LP Pitch and Underwriting Framework | 4 | 5 | 0 | 0 | Ted asks how Clearlake's core LP pitch is distilled today. Jose walks through the core value creation thesis: buying with differentiated operational plans across cycle troughs. | |
| Sourcing Channels and Thematic Investing | 4 | 4 | 0 | 0 | Ted asks about proprietary sourcing and deal generation across target sectors. Jose details their broad sourcing network across restructuring desks, bankers, and thematic sub-sectors. | |
| Investment Committee Discipline and Memo Philosophy | 4 | 6 | 2 | 0 | Ted asks how capital allocation tradeoffs are vetted in Investment Committee. Jose forcefully rejects bloated 200-page PowerPoint decks and overly optimistic up-and-to-the-right projections. | |
| The Clearlake OPS Framework | 4 | 4 | 0 | 0 | Ted asks how Clearlake deploys its operational framework (OPS). Jose demystifies the acronym into institutionalized operational, human capital, and strategic playbooks. | |
| Case Study: Sage Automotive Interiors | 5 | 6 | 0 | 0 | Ted requests a flagship case study illustrating the firm's approach. Jose details the Sage Automotive turnaround, restructuring JV control in Asia and selling to a strategic partner for a 10x return. | |
| Managing Scale, Delegating Authority, and Talent Retention | 5 | 5 | 0 | 0 | Ted probes how Clearlake's investment process adapted when scaling from $3B to $75B AUM. Jose discusses delegation, retention of senior partners, and maintaining cultural cohesion. | |
| Seeding Clearlake with Reservoir Capital | 5 | 6 | 1 | 0 | Ted asks about the pros and cons of launching with seed backer Reservoir Capital. Jose explains how a single LP vehicle acted as an unconstrained petri dish to prove out complex deal structures. | |
| GP Stakes Transactions and Platform Expansion | 5 | 5 | 0 | 0 | Ted asks about selling minority GP stakes to Dyal and Petershill. Jose explains how European carry waterfall dynamics necessitated permanent balance sheet capital for fund GP commitments. | |
| Pioneering Single-Asset Continuation Vehicles | 5 | 6 | 0 | 0 | Ted asks about Clearlake's pioneering work in single-asset continuation vehicles. Jose explains repositioning continuation funds for premier compounding assets rather than troubled tail-end fund assets. | |
| Navigating Dislocated and High-Rate Markets | 5 | 5 | 0 | 0 | Ted asks how to deploy capital in high interest rate and inflationary regimes. Jose explains that traditional buyout activity stalls due to debt markets, shifting focus to bespoke structured equity and distressed debt. | |
| Chelsea FC: Sports as Recurring Content and Media Assets | 5 | 6 | 0 | 0 | Ted asks how a tech and industrials investor justified acquiring Chelsea Football Club. Jose analogizes sports franchises to media tech assets with recurring content and outlines the distressed auction dynamic. | |
| Applying the OPS Playbook to Premier League Football | 4 | 5 | 0 | 0 | Ted asks about deploying operational engineering to a Premier League club. Jose discusses applying data analytics, global commercial monetization, and structural upgrades. | |
| Industry Trends and Permanent Capital Structures | 4 | 5 | 0 | 0 | Ted asks about emerging fund structures. Jose details permanent capital options including insurance partnerships, BDCs, and management company listings. |
Statements from this episode (29)
Feliciano: Many PE investors lack experience working at real operating companies
“Many people in our industry and investing side I've never really had a real job. Never worked at a job where they're selling widgets, making, producing, marketing widgets. I think that that gives you a very different perspective about investing.”
Clearlake embeds associates in portfolio companies for up to six months
“So to this day, one of the things that we do at Clearlake is that our associates during their time here, they actually spend anywhere between three months, sometimes as much as six months embedded within one of our portfolio.”
Feliciano: Special situations and private equity run on inverse economic cycles
“Over my time of time, one of the things that I noticed is that because we were more over special situations, there were times in the cycle that we were very missing. There were some really interesting opportunities, but there were other times in the economic c…”
Feliciano: Clearlake structures funds with full capital recycling during investment periods
“You look at our funds, additional funds with a ten-year block-up, maybe a few extensions. The investment period is five or six years, but during that investment period, we can recycle any of the capital.”
Feliciano: Clearlake invested $3B to $4B in credit over 3 months in 2020
“When COVID created significant dislocation, not only in our lives, but in the credit markets, we invested three or four billion dollars in the secondary credit markets, basically the period of three months.”
Feliciano: Clearlake struggles hiring lateral partners from hedge funds and growth equity
“We actually have a difficult time going to a hedge fund or hiring somebody that doesn't stress very well laterally as a partner. We equally have a challenge. We go to a growth equity firm, somebody that understands to say, you know, healthcare is really well, …”
Feliciano: Warren Buffett's success stems from a highly flexible capital structure
“One of the key things about Warren Buffett success is that he had a very flexible capital structure, very flexible source of capital, and within that The same team, if you think about it, was making buyout decisions, was buying equity in the secondary market, …”
Clearlake pivoted entirely to the secondary market in March 2020
“When we went from the first week of March where we were having investment committees weekly and talking about buyouts, two weeks later, there were no buyouts in our pipeline. We were having investment committee daily and everything that we were looking at was …”
Clearlake refused LP demands to cap strategy flexibility during fundraising
“We were certainly asked by some of our potential LPs, well, we would invest if you restrict this part of your strategy to no more than 40% of the investments or no more than x. And we refused to do that. Even at a time we were desperate for capital because we …”
Feliciano: Executing two to four critical business changes drives PE returns
“The better we are, and identifying the two or three or four things that really matter in that business, And then making that change in those two or three or four things, we have found that the better the outcome. And then everything else is secondary.”
Feliciano: Clearlake completes 10 platforms and 40 to 50 add-ons annually
“In a typical year, we'll do 10 platforms, not 10 investment platforms, but we'll do probably 40 to 50 ads.”
Clearlake's investment committee brutally challenges overly optimistic deal presentations
“So if you come to a investment committee at Clearlink with a fancy deck and it's all offside and the objections go up into the right and it
Everything's great.
You're probably going to come out a little bloody from that investment committee, because there are …”
Feliciano: 200-page investment decks indicate deal team laziness, not rigor
“So a long, you know, PowerPoint presentation is just, you didn't have time to really digest kind of the information for the consumption of the committee.
You got lazy and just put out every PowerPoint or every slide that you could.
That's not the way I like to…”
Clearlake generated a 10x return on Sage Automotive Interiors
“And then we actually sold it to a customer, actually customer slash supplier, and ended up making 10 times our money, and certainly a great outcome.”
Feliciano: Operational changes are easier to implement in larger companies
“What we have found is that the type of change that we bring to the table is actually easier to implement now than it was five or 10 years ago with a smaller company. Not necessarily because these companies are embracing it any more or any less, but they have j…”
Clearlake launched with seed capital from Reservoir Capital
“In our case, we partnered with a firm that's fairly well-known in the seeding world or was a reservoir capital led by Dan Stern and Craig Huff. They provided some of that initial capital.”
Feliciano: Some LPs still dislike minority GP stake investors
“To this day, there are LP segments of the LP world that don't love that idea, right? Don't love the idea. They look at it and they think, well, we think that that may misalign incentives some ways, and there's still some elements of the LP base out there that …”
Clearlake executed simultaneous GP stake sales to Dyal and Petershill
“We actually did a deal at the same time with Dial, Blue Owl Capital, and Petersil, which is a division of coal and sacks.”
Clearlake utilizes a European waterfall carry structure to align with LPs
“As we had grown, we actually had a Fairly LP-friendly fund structure where a significant amount of our carry is in the European waterfall versus an American waterfall, meaning fund, we have to return the old fund versus a deal by deal basis.”
Feliciano: Clearlake sold GP stakes to fund co-investments and multi-product expansion
“So there were two primary reasons for us to pursue a GP of stakes deal. One was To create a base of permanent capital at the GP level that would be used to invest in our own funds. And the other thing is, we always had the idea, right, that we were more than j…”
Clearlake raised nearly $10 billion across five single-asset continuation vehicles
“Total capital, roughly just showing up ten billion dollars in those five vehicles. And the first two have already returned all the capital back to the new investors.”
Very little deal activity is happening in traditional private equity buyouts
“Today, that probably means there's very little going on in the traditional buyout world, primarily because of the lack of financing that really puts it down on our fence, and people are not bringing businesses and traditional private equity options, because wh…”
Clearlake's pipeline shifted heavily toward special situations and structured capital
“So our pipeline right now is used to a little bit more into Special situations that may be bespoke transactions where we are basically providing either some type of debt instrument or structured equity instrument to a company to enable something, liquidity, ac…”
Feliciano: Major sports teams operate like recurring-revenue media businesses
“A lot of the revenue in a traditional major sports league team is actually recurring revenue. That's locked in. A lot of that revenue is media related, so a lot of these properties, if we don't think about them as such, they're really valuable, renewable conte…”
Chelsea FC's forced auction excluded a significant portion of natural buyers
“The economic sanctions that the UK and the European India put off certain individuals directly led to one of those individuals, former owner Chelsea, having to put the team up for sale. So, situationally, for us, Chelsea was essentially a forced auction by a f…”
Clearlake won the Chelsea FC auction on speed, not highest price
“Here, price was not the most important factor, speed, certainty, Understanding of a situation. Understanding how to turn a business around, perhaps. Those are actually more important considerations. And that enables us to prevail.”
Feliciano: Permanent capital is the most interesting structural trend in private markets
“The most interesting trend out there that we have to think about is the different versions of permanent capital, and that can be in a waterfront. There's a version of permanent capital that could be partnering or doing something with an insurance company that …”
Feliciano: Clearlake is not currently pursuing permanent capital or a GP IPO
“I honestly can't say that we have incited to do any of those things, or that we are pursuing any of those things and earnings, but those are the type of things that I go to bed at night, that's what I'm thinking about.”
Clearlake requires deal models to show returns without assuming unidentified M&A
“If you were an investment committee, clearly you would know that you showed me an upside case that includes a bunch of acquisitions that we haven't done that have not been identified. You're going to be called out for it. It's okay to have a buy and build stra…”