Assertion Supported
Ethos Capital manages nearly $6B in AUM with just one deal team
“We have one deal team, which is a bit unusual in an organization that has almost six billion dollars of capital under management.”
Disclosure
Ethos built a proprietary AI operating system indexing all firm communications
“We have built from scratch our own AI-powered operating system. We have these 16 partners in different locations that need to look at information asynchronously. Everything that we do at Ethos feeds into our data lake and is run through our knowledge graph in …”
Insight
Training young investment bankers for a decade builds strong firm culture
“Hire young people right out of investment banking. Spend the next 10 years training them how to be a partner. That creates a great culture. It worked magnificently well for a long time.”
Insight
Traditional private equity diligence meetings naturally devolve into interrogations
“If I'm asking a management team questions, there is this heaviness that exists. You try and break through, but just naturally exists where the management team, okay, here come the private equity folks. The private equity folks walk in like, okay, here's the ma…”
Insight
Brooks: Private equity's core input is information, not glass or metal
“Our input to the process is not glass or metal. It's information. If the questions are better, then the information you're going to be getting is better. If you get better information, you have somebody who is more knowledgeable in interpreting that informatio…”
Insight
Private equity operating partners must be collaborative and non-threatening to executives
“That seat is not a seat for every kind of operator to sit in because you have to be open. You have to be non-threatening. You have to be collaborative. You have to give off all of those personal qualities in order for the person that you're talking to give you…”
Disclosure
Brooks built Ethos from scratch to avoid retrofitting an existing firm
“What I had come to realize that I needed to do with Fadi was create something completely new. Not something that could be retrofit in any way, shape, or form. It was a recognition that Avery was a three Michelin star French restaurant serving 300 people a nigh…”
Insight
Traditional private equity partner tracks require broad generalist skills
“When you become a partner at a private equity firm, you really have to be a mile wide and an inch deep because you have to be good at all of these different things. Working with bankers, brokers, lawyers, accountants, reading financial statements and credit ag…”
Disclosure
Ethos Capital structures its partnership around deep specialization, not generalists
“What we've done at Ethos is we've recognized that not everybody has to ultimately be great at everything and each deep and a mile wide. What we've done is created an organization of people that in some ways are an inch wide and a mile deep. Recognizing that no…”
Disclosure
Ethos builds 12-person deal teams featuring five to seven operating partners
“A typical deal team at Ethos will have a dozen people As opposed to just a partner, a principal, a vice president, and maybe an associate, because we're adding five or six or seven of those operating folks into the deal process itself.”
Disclosure
Ethos Capital pursues a hyper-concentrated strategy of one deal per year
“We're only looking to do about a deal a year. We are very concentrated.”
Disclosure
Ethos Capital conducts deep diligence on only six or seven companies annually
“We probably dig deep on No more than six or seven companies a year.”
Assertion Supported
Ethos Capital completed zero investments in 2024
“In 20, 24, we didn't do a deal.”
Assertion Not checkable as stated
Identity Digital generates 60%+ EBITDA margins and 98% free cash flow conversion
“The business has EBITDA margins in the sixties, is growing top line double digit, has 98% free cash flow conversion, very much like Verisign, for example, almost a mirror image.”
Insight
Ethos rejects investments lacking 20 to 30 distinct operational improvement ideas
“If we only come up with four or five ideas, then it's not an ethos company. There's no alpha in our participating in throwing our resources into the business. It's got to have a lot of ideas.”
Insight
Expecting portfolio executives to execute transformations alongside their day jobs is unrealistic
“One of the things that we've done is leaned in and enhanced the management teams of the businesses that we've owned to give them the resources to do some of these things, because it's unrealistic to assume that someone's going to do their day job and all of th…”
Disclosure
Ethos treats operational transformation initiatives as pure alpha above base underwriting cases
“All of these are the things that we're working on that we don't build into our base cases. If any of them work, And we had our base case, then there's alpha in a system of hopefully asymmetric risk that we've created in the original base case.”
Assertion Supported
Ethos restructured Identity Digital debt to save the company $50M annually
“A SOFR plus six, 25 unit tranche deal that we're paying 10 and a half on into a securitized asset backed loan that we're going to pay a fixed 6.8% and save fifty million dollars a year. That's a complicated thing where you have to completely redesign the legal…”
Disclosure
Ethos enforces a strict cone of silence between operators and portfolio executives
“We've made it very clear, and our partners are great at executing this, which is the relationship that the ethos partner has with their counterpart at the company is Is a sacrosanct cone of silence, trust relationship, where the only information that's coming …”
Insight
Holding a portfolio asset equals choosing to buy it at current valuation
“If you own something, then you are choosing to buy it at the price that you are carrying it. You should be thinking about everything that you own through that lens.”
Assertion Not checkable as stated
Financial impact of PE operational interventions takes two to three years
“We put so much work into these companies that I would tell you that the real evidence of financial performance doesn't really show up for probably two or three years.”
Disclosure
Ethos exits when the projected forward one-year IRR falls below base case
“Exiting for us is driven by what do we think the incremental rate of return is on owning the business for another year? If it's below our base case, then we should probably sell it.”
Assertion Partly supported
David Swensen and Julian Robertson backed Brooks's 1990s Eastern Europe fund
“It was a magnificent, exciting, terrifying period of time where I had the opportunity to work with David Swenson, Julian Robertson, and Andrew Golden, who were investors in our fund at the time”
Assertion Not checkable as stated
Every Ethos Capital partner was known to founders for a decade
“Every partner at Ethos is somebody that Fadi or I have known for at least a decade.”
