Private Equity Experience

PE's Secret Weapon? How Operating Partners Drive Returns

• Emily Sander • Season 1 • Episode 18

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In this episode of the Private Equity Experience Podcast, we dive into the critical role of operating partners in private equity funding and their impact on the dilution of investment value. Hosts Emily Sander, Rory Liebhart, and Ed Barton break down how operating partners bridge the gap between PE firms and portfolio companies, offering tactical expertise, strategic oversight, and operational efficiencies. From CFOs and CTOs to turnaround specialists, discover why these professionals are a game-changer for PE returns and how they help mitigate risks in high-stakes investments.


Key Topics Covered:

  • What are operating partners? Learn how they act as "connective tissue" between private equity funds and their portfolio companies.
  • Private equity funding strategies: Explore how operating partners enhance IRR (internal rate of return) and create value through operational expertise.
  • Dilution in PE investments: Understand how their role can reduce dilution risks by streamlining deal execution and improving scalability.
  • Case studies: Real-world examples of operating partners in action—CFOs, CTOs, and turnaround specialists.
  • Future trends: How tech-savvy operating partners (e.g., CTOs, AI experts) are reshaping PE strategies in a rapidly evolving market.

Why This Episode Matters:

  • For investors: Insight into how operating partners boost private equity funding efficiency and reduce dilution of returns.
  • For entrepreneurs: Learn how PE-backed companies leverage operating partners for scaling, cost-cutting, and strategic growth.
  • For professionals: Discover how to transition into a private equity operating partner role and the skills needed to succeed.

Notable Takeaways:

  • 70% of PE firms under $1B use operating partners to fill operational gaps.
  • Operating partners bring playbooks for turning around distressed businesses or scaling growth-stage companies.
  • Their expertise in private equity funding strategies, like technology integration and financial restructuring, contributes to a 3–5% IRR lift.
  • The future of PE: More technology-focused operating partners (CTOs, AI specialists) to capitalize on innovation-driven value creation.

#PrivateEquityFunding #OperatingPartners #DilutionInPE #IRRStrategy #CFORole #PrivateEquityTrends #ManagementConsulting #PEIndustryInsights

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Who Are We?

Three insiders. One mic. All things private equity — explained. Hi 👋 We’re Ed, Rory, and Emily — a CEO, a CFO, and a Chief of Staff — here to demystify the world of private equity. Between us, we’ve sat in the founder’s chair, run PE‑backed companies, and worked on the deal side, so we know the wins, the pitfalls, and the jargon (and we’ll explain it).

Through the Private Equity Experience Podcast, our book On‑Ramp to Exit, and a library of free tools and templates, we share real‑world stories, practical strategies, and insider insights to help you navigate every stage of the PE journey — whether you’re leading a portfolio company, joining a deal team, considering PE, or just PE‑curious.

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emily-sander_1_07-22-2025_145945:

quick stat, 70% of PE firms with less than$1 billion of assets under management employ operating partners. So we've talked about a whole bunch of that is so surprised. We've talked about a lot of partners on this podcast, so deal partners and financial partners. Opening question for you two, if. Private equity is a band. What instrument does the operating partner play?

rory-liebhart_1_07-22-2025_145945:

What a question that is.

ed--yes-_1_07-22-2025_145945:

where, where the hell did you come up with that?

rory-liebhart_1_07-22-2025_145945:

You know, I'm gonna say rhythm guitarist, I think.

emily-sander_1_07-22-2025_145945:

Okay,

ed--yes-_1_07-22-2025_145945:

I was either gonna say rhythm guitars or vocals,

emily-sander_1_07-22-2025_145945:

vocals.

ed--yes-_1_07-22-2025_145945:

they're the ones that the operating partner is, is gonna be more the one that, well, I don't know. really depends on the role of the operating partner, so it could be anywhere from

rory-liebhart_1_07-22-2025_145945:

old, it depends.

ed--yes-_1_07-22-2025_145945:

It could be anywhere from vocals to the bass

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

Keeping the beat. Yeah.

ed--yes-_1_07-22-2025_145945:

They're driving the driving the beat, or they could be, depending on their role, could be parachuted in and they're driving the, driving the entire band,

rory-liebhart_1_07-22-2025_145945:

Yeah. Well,

ed--yes-_1_07-22-2025_145945:

at least on that.

rory-liebhart_1_07-22-2025_145945:

here is it's a hell of a gig to get, whether you're in a band or you know, working for PE as an operating

emily-sander_1_07-22-2025_145945:

Yeah.

rory-liebhart_1_07-22-2025_145945:

great gig to get for sure.

emily-sander_1_07-22-2025_145945:

All right. So.

rory-liebhart_1_07-22-2025_145945:

about it here.

emily-sander_1_07-22-2025_145945:

A whole bunch of PE firms are using operating partners. There's a whole bunch of different kinds of operating partners. It like is a entry into this for our listeners. They're kind of like consultants that you would bring on. They're people you would deploy for pieces of the operation of your business. Um,

ed--yes-_1_07-22-2025_145945:

the above.

rory-liebhart_1_07-22-2025_145945:

Yeah, a hundred percent.

ed--yes-_1_07-22-2025_145945:

A typical operating partner scenario, what, where the commonality is, is the operating partner's expertise is in the day-to-day. Tactical operation of a business. So where your pe you know, we've talked a lot about how the PE team is, is formed and structured and how the deal team looks. Those guys, that is their expertise is how do I financially structure a deal? How do I financially structure a business? How do I, how do I kind of get the deal to close and negotiated? And then you've got, and then on the other side, the sell side, you know, how do I get this company sold in position? The operating partner is the one that kind of sits in there and goes, okay, let me make sure that this thing is operating the way it's supposed to. And, and so their expertise is the tactical operation of a business, and they could serve in any type of role from, again, I've kind of been in a bunch of these types of roles. This is, this has been my kind of, my jam is I could be sitting at the fund level assisting. The, the operating businesses. And so it could be, I was, you know, maybe a shadow CFO and so there was a CFO at the business and I was consulting to them to help

emily-sander_1_07-22-2025_145945:

Sounds so ominous. A shadow C-S-O-C-F-O.

rory-liebhart_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

or, or it could be you are an operating partner and you are consulting with a group of. CEOs, CFOs, whatever, on operational components, and we had that at Primus. They had a, they had an operating partner who really assisted all of us, like at the CXO level to kind of pull things together, best practice sharing, those kind of things. Or it could be you're an operating partner and we need you this particular investment because we're short A CXO, and therefore you go in there and you're the CFO. The COO that. the CEO, whatever, and,

emily-sander_1_07-22-2025_145945:

he usually has a bench of those folks they can pull from.

ed--yes-_1_07-22-2025_145945:

well, it, the, the difference is the operating partner is going to be sitting, they're basically, as opposed to being like they're in the Rolodex. And so you've got the, the Rolodex, you go, Hey, I need a CFO. Okay, I'm gonna go call Rory.'cause Rory's been a CFO, one of my portfolio companies in the past and we successfully exited an operating partner is normally. On the, on the bench. In the, in the private equity firm. So they're on payroll, they're, they're part of the private equity firm, but their expertise is in one of those operational elements or tactical elements, and they're deployed by the private equity firm, kind of on a, on a routine basis either. And again, their expertise is a tactical, so where it's not like, okay, they're on the, there, there's a Rolodex of these folks. They have those. partners are there day in, day out, they may even be part of the diligence process

rory-liebhart_1_07-22-2025_145945:

definitely.

ed--yes-_1_07-22-2025_145945:

the operationalization of that strategy,

emily-sander_1_07-22-2025_145945:

They're like, they're entrenched in in the business.

rory-liebhart_1_07-22-2025_145945:

Well,

ed--yes-_1_07-22-2025_145945:

At the, at the pe. At the pe, at the PE fund, at

emily-sander_1_07-22-2025_145945:

Yeah.

rory-liebhart_1_07-22-2025_145945:

generally true for operating partners. One, they're not schlubs. These are generally highly successful people that have had exits. You know, in a lot of ways it's almost like a second career for folks, at least. The, you know, a lot of them that I've dealt with, they've, they've run businesses and sold them and. You know, they've moved from being on the operating company side to the PE side, but there's, because of the success they've had as operators, this is where it kind of segues into the PE strategy is, you know, each PE has its own niche. It has its own, um, kind of sectors that it focuses on and things like that. And so a lot of times operating partners are the folks that have been really successful in that particular. segment in that particular operating business, um, kind of template. And so, you know, a PE company and a PE group is an investment company. They were investment professionals. So you matched that with a power of a strong operator. That's a really, really, uh, impressive thing. I read a stat recently, I, I don't know, it's a McKinsey stat, you know, something like three to 5% IRR lift. On investments that PEs make when they employ operating partners, and

emily-sander_1_07-22-2025_145945:

operating partner. Wow.

rory-liebhart_1_07-22-2025_145945:

that aren't just like. Making a meager salary. These are, you know, they're operating partners implied in the name, they're part of the gp, they're part of the part of the PE group. They just are a different functional role than somebody that's an investment professional per se. it's super, super important and can be a major asset to PE group and to an operating company. A lot of times they bridge the gap between, you know, a management that's now owned by PE. And the PE group and vice versa, as Ed said, you know, assisting with the diligence, but also helping hire the right CEO, uh, for the operating business, it can be. It's just a, it's just another way of saying we've got a lot of firepower the bench in terms of brains and, and experience.

emily-sander_1_07-22-2025_145945:

Yeah. Well, I mean, my closest experience is seeing chiefs of staff be deployed as operating partners. And when I like the word that you used, was it, they're not shrubs. Uh, they're not shrubs. Um, it's basically like this, this, I see. I've seen chiefs of staff be deployed and they're like this force multiplier where they add this layer where they, they. Lift the leadership team exponentially. So leadership team and going along, making progress. Making progress, incremental progress, steady progress. And then you just like exponentially multiply it. And I think that's, those are some of the game changers that you could have as operating partners when it goes well.

rory-liebhart_1_07-22-2025_145945:

No question about it. And a lot of times the genesis of the relationships start when maybe a, you know, the PE group acquires a company. maybe the, that operating partner at the time is an executive with that operating company. successful, they sell that business operating partner, you know. Maybe, uh, looking for the next thing and they're like, Hey, well let me, you know, hop on the other side of the fence and work from PE side and, and really as you say, like help them their uh, portfolio in the right way. And, you know, kind of that's where the expertise around like being able to spot and with Ed's point, you know, you have the Rolodex and the connections in the industry to find. up opportunities, which we talked about in the last podcast. Um, there's a whole litany of reasons why a CEO type of person on the roster at a PE group is super valuable. Just as valuable as it is to have'em run the operating company in some cases.

emily-sander_1_07-22-2025_145945:

What are some other examples just for folks to get their head around? So we've mentioned chief of staff, we've mentioned, you know, if you're in an industry and someone's run the playbook at an operational level before, maybe if they're trying to build a new channel and it's like, Hey, you were at this type of company before and built this new channel for them, here's a like company, a similar company, can you do it again? Is it cutting costs? You're really good at that. What, what types of things are they brought in for?

ed--yes-_1_07-22-2025_145945:

The, the one I've seen Mo, there's two roles I've seen that are common outside of the CEO. So you've got a, someone who's been a successful CEO and like Rory said, they're brought in a really mentor, the founder or the the new private equity. Kind of enmeshed, CEO on how to transition most effectively into that fund environment. But the other two roles that I've tended to see heavily, um, populated on the, on the, uh, the operating partner side have been chief financial officers and chief technologists.

rory-liebhart_1_07-22-2025_145945:

Yes,

ed--yes-_1_07-22-2025_145945:

And again, a lot of, a lot of the challenges that when you think about a, a private equity investment. A lot of times they're looking for increased multiple. They're looking for, you know, how do I, how do I get this business to scale? How do I get leverage into it? How do I, and one of the key components to that is how do they utilize her technology and how do they integrate that technology into the operations? And how do you think about technology as a. Strategic as a strategic force and a scalable one and a replicatable one rather than just a, well, we do technology or we're a technology company and those, those technologists that are business oriented are tough to, they're tough to find. That's a tough bridge. normally have technologists who dunno, technology or you've got. Technologists who don't know business, and where I've seen the operating partners, where private equity is brought in operating partners are the technologists that really are skilled at bridging both, you know, business,

emily-sander_1_07-22-2025_145945:

We had one, we, we had one better.

ed--yes-_1_07-22-2025_145945:

and I, and I will tell you that they, you know,

rory-liebhart_1_07-22-2025_145945:

of

ed--yes-_1_07-22-2025_145945:

calls routinely from our old PE firm. Are you ready yet? Are you ready yet? Are you ready yet?

emily-sander_1_07-22-2025_145945:

Well, it's funny because you mentioned due due diligence. So our, so the person Ed and I are referring to was our COO and CTO. He held both roles, um, at various points in the company and he was so good at bridging the technology and the business and he was just a, nor he could, he was just normal, cool dude you could hang out with. And, um, he could explain things to you and he would help with. Due diligence for other potential investments because they trusted him so much and they knew his work product, um, and his and his.

rory-liebhart_1_07-22-2025_145945:

A lot of times these operating partners, depending on the functional role, know, like A-C-C-F-O or a CTO as I was talking about, those are. Almost like a shared service in a way from the PE group to the portfolio of operating companies. And, and one of the things that is always talked about is you try to create, synergies and consistency across operating, uh, portfolio. If you're looking to kind of have them represent a, a strategy that's kind of uniform. Another way of saying that is they, they, they're the connective tissue in some ways. To make sure that, hey, if we're going to buy software for these companies, it's gonna be consistent. It's gonna be plug and play. It's not gonna be a mishmash or, or whatever architecture we, maybe we have a unified vision of moving to the cloud, whatever that may be. And the same thing goes for the CFO role. I, I look at that similarly, is. You know, um, you know, a good CFO can probably come in and be effective for any type of company at that point, you know. Um, and so they do is kind of help operating companies the demands of an, you know, of, of the PE fund. As an ownership group, because ultimately they do work for the PE fund, but they're really that, you know, connective tissue between management and PE in a lot of ways. And then ultimately, you know, they sit on the board of these operating companies too. So yes, they're, they're, they're a part of the PE group. But as we've talked about in our book, and we've talked about on this podcast a couple times, you know, you're, you've got other folks at the table, the board table, so to speak, uh, beyond just the management. You know, you have the reps from the PE group, um, and a lot of times the operating partners are those folks that are, you know, uh, sitting along the, around the table helping you think through the problems you have. And one of the things, again, that, um, is attractive. Two PE groups for in operating partners is they come with generally a playbook. They've been there, done that, and all businesses are unique, but you know, most people at a certain point in their career, if they've been successful running businesses have kind of seen it all. so if it's matched up with the right strategy. Uh, that the PE group is making investments in, then they can just come in and say, here's how we get it done, folks. You know, we're going to strip this out, we're going to roll this up, we're gonna tuck this in, and then we're gonna synergize and we're gonna flip and we're gonna x multiply and know it sounds really cool, but people are highly effective of that, and they just rinse and repeat and they make a lot of money for a lot of people, including themselves.

emily-sander_1_07-22-2025_145945:

And I mean, you both have specialized at some point in your career in turnarounds. Is that a, Hey, I have an operating partner who knows the playbook for turning around this type of business or this type of distressed business?

ed--yes-_1_07-22-2025_145945:

and a turnaround. And a turnaround approach there. It is a skillset that's different from a growth oriented, like I am not a growth guy. I am more of a turnaround guy. Growth. Growth is not my expertise and I. Tend to be able to go, okay, I can get you stable. I'll get you kind of a point where you can start to grow and then you need to find someone else.'cause I'm, I panic when I start spending money on marketing and stuff. That's just, I get

rory-liebhart_1_07-22-2025_145945:

and I share that trait. Oh my God. know what it is about marketing, but that's the one that just gives me the most freaking angst

ed--yes-_1_07-22-2025_145945:

Oh yeah, no, it, I don't see the ROI in it, but

rory-liebhart_1_07-22-2025_145945:

ROI negative on

ed--yes-_1_07-22-2025_145945:

Yep.

rory-liebhart_1_07-22-2025_145945:

like, you

ed--yes-_1_07-22-2025_145945:

but the skillset, so like when you said turnaround. A lot of times turnaround is like, from my seat, I've been called on to turnaround everything from financial services companies to tech companies to, you know, it doesn't, the, the playbook is largely, is largely the same. There you have to learn the business, but the playbook on a turnaround is similar. Then on the growth side, it's a little bit different animal That tends to be a lot more industry specific because you really need to leverage your expertise of the market, your expertise of your competitors and, and those elements. So it's easier for me to get a company to, to a positive net operating income. Than it is for me to get from that positive net operating income to a 30% growth rate. And other people, other folks who are in that industry have problems going, how do I get to a, to a zero, to a, you know, a a zero at the bottom of the financial statement or positive. But once you're there and they've got resources, they can grow that thing at a 20% compounded annual growth rate.

rory-liebhart_1_07-22-2025_145945:

Right. maybe think about something there. I think turnaround I think CFOs can often be great turnaround CEOs. Based on the qualities they bring to the table. Right. It's, a lot of rationalization. It's a lot of undoing wrongs and things like that to getting it to a point of, you know, being prime for growth again. And so, yeah. That's interesting. I dunno, that was a good.

emily-sander_1_07-22-2025_145945:

And you had mentioned. Board members or board seats earlier. And I remember, um, I've had, I mean, you, you guys have probably had some too, but independent directors, so folks who are like.

rory-liebhart_1_07-22-2025_145945:

seen them all.

emily-sander_1_07-22-2025_145945:

Yeah, but I've had some phenomenal, um, independent directors who were just like grounded, good people wanted to help out. They were certainly like part of the board and kind of, you know, tucked in with the PE firm. But they came on site, they tried to help, they connected with, with folks who could help us with stuff, and they were some of the best resources we had. So, um,

rory-liebhart_1_07-22-2025_145945:

ones. Then.

emily-sander_1_07-22-2025_145945:

yeah.

rory-liebhart_1_07-22-2025_145945:

would say I've, I've never, I've never seen some mind blowingly good ones. I've seen some neutral

emily-sander_1_07-22-2025_145945:

Huh.

rory-liebhart_1_07-22-2025_145945:

but I've never seen some game changers, but I know they're out there

emily-sander_1_07-22-2025_145945:

Okay.

rory-liebhart_1_07-22-2025_145945:

out there. Um, but that, but that's where it comes into like what's sometimes the criticism of. These operating partners, maybe, maybe they become too meddlesome on the board for, for, for, you know, for the purposes of what that particular operating company is trying to achieve. And maybe they've become more of a distraction or, kind of chase things down based on their own perceived playbook. That just isn't the right playbook for that

emily-sander_1_07-22-2025_145945:

Yeah.

rory-liebhart_1_07-22-2025_145945:

Maybe they thought it was, but it's not. You know,

emily-sander_1_07-22-2025_145945:

Where do you come.

rory-liebhart_1_07-22-2025_145945:

I've certainly seen that

emily-sander_1_07-22-2025_145945:

Where do you come down on the like outsider piece? Because I was just talking to like a chief communications officer and he does

rory-liebhart_1_07-22-2025_145945:

wisely.

emily-sander_1_07-22-2025_145945:

these, like, these like workshops where they, they need someone from the outside to come in and like facilitate this discussion. And then I have other cases where it's like we don't wanna outsider out, outsider consultant coming in and telling us how to do our thing, you know? So I'm wondering like where you guys come down on that.

rory-liebhart_1_07-22-2025_145945:

the board board construction chapter in our book's, one of the more insightful ones, and I think we could do a whole and should on, you know, board dynamics. But, um, you know. Each company, again, I'll say it again, is, is is unique. It has its own dynamics, its culture, its challenges. So when you bring in a a, an external board person, you know, what is it you're trying to solve for? Are you trying to babysit the CEO? Are you trying to, you know, a product strategy, implement a go to market? I mean, there's a whole litany of things that you could be trying to achieve. So it's really matching what you really need. To the, you know, individuals that can actually help push that forward rather than just literally up a board seat and, you know, add no value in a quarterly board meeting that lasts six hours. You know, like I've seen that a lot. Um, but you know, I know that there's folks out there that have made. Businesses way better, um, on behalf of ownership by what they bring to the table. And, and what that, what does that really mean? If you really break it down, it means you willing to put in some work to help this company succeed? Which means opening up your Rolodex, forging connections, um, drawing back on the things that made you successful, bringing them to the bear here, you know, um, you know, coaching and mentoring in a authentic way. Um, you know, being, know, a, a true, um, liaison between management and pe, uh, there's a whole things that that can actually happen. But then there's stuff that, you know, theoretically should happen but doesn't, which is, you know, adding value. So, uh, and a lot of, you know, these people, you, you know, the company is paying these folks, right? You know, there's oftentimes compensation attached to those roles, not just paid by. Uh, the PE group to that group, but like also paid by the company to a board member, cash, comp, equity, all that stuff. So, you know, there's only limited amount of that resource to give away. Make sure you're giving it away to the right person or people.

emily-sander_1_07-22-2025_145945:

Do operating partners always have a board seat or can you? You can be, I know you can be an independent director by themselves. You can be an operating partner and or you could be both. There's just different combinations.

rory-liebhart_1_07-22-2025_145945:

Yeah, I'd say nothing's absolute. I'd say, you know, a lot of times you have board seat taken up by one of the, you know, managing directors on the deal from P group, and then maybe independent director that may or may not be a, you know. operating partner in the PE group might just be an independent, that's not affiliated, but it also could be an operating partner that's part of that group. I know a lot of folks at PE groups that are on boards that are operating partners, for

ed--yes-_1_07-22-2025_145945:

Yeah, your, your operating partner from the PE group is not an independent director in any sense.

rory-liebhart_1_07-22-2025_145945:

right?

ed--yes-_1_07-22-2025_145945:

They're, they're a, they're a gonna be a board member from, as a representative of the private equity team.

rory-liebhart_1_07-22-2025_145945:

Mm-hmm.

ed--yes-_1_07-22-2025_145945:

So, you know, it was funny when Rory had mentioned about, you know, independent directors and you guys are talking, I was kind of thinking back to the first private equity backed company that I was with. is, is where, where we hired Rory, um, to do bank recs, um, a couple years ago. Yeah. We actually had an incredible,

rory-liebhart_1_07-22-2025_145945:

sometimes.

ed--yes-_1_07-22-2025_145945:

we actually had an incredibly high powered set of, of set of board members. Like we had, we had board members that were like former chairman of Goldman Sachs and we had board member who was, uh, on a federal reserve. And we had, I mean, it was like these were some powerful, powerful, powerful dudes.

emily-sander_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

you know, the, the CEO was, was tough to work for, but you gotta give him credit. And that he had a board that had some really both local, um, powerhouses, like Herman Sarkowski and then some national powerhouses on that board that were just, holy cow. You know, you get on a board call and you listen to what these guys had to say.

emily-sander_1_07-22-2025_145945:

If, if someone is.

rory-liebhart_1_07-22-2025_145945:

You just hit on something though, ed. I am sorry to interrupt you there, Emily, like. Engagement is so important in these things. It's, it's one thing to assemble the, like, roster of all stars on the board, but it's another thing to get the actual engagement from the board in that business.'cause these are folks typically, uh, we're, we're now moving more towards board, but like, you know, this may not be the only thing they have going either. So it's like, you know, getting the engagement level at the level that you want to see, it can sometimes in its own right, be a challenge,

ed--yes-_1_07-22-2025_145945:

Yeah, and that's, and that's actually where the operating partner is of benefit.'cause they are paid to be focused on that portfolio of companies. Where your outside board members or independent board members may or may not be getting paid cash. They normally will have some skin in the game, you may or may not, if they don't feel like it's worth their time. Or that, you know, the return is gonna be worth the investment in time or money, you will not, you know, when you've got a, when you've got a, and we had for instance, Chris Flowers, who is with Goldman, powerful dude on our board you have a Chris Flowers and he's like, I'm not, this is a waste of my time. You're not gonna get engagement. He's got, he's got banks to buy. He's, he ain't gonna, he ain't gonna worry about, you know, his little investment in this small company in Seattle.

rory-liebhart_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

And you know it, but when there is something to do, he would engage. And so that was, or when he felt like there was something worthwhile. So I think that's where the operating partner is. A real advantage for the private equity team is you, you get the, in theory, you get the expertise of that independent board member, but you also get their focus where an independent board member, outside board member, you may or may not get that focus, that that is really gonna help the management team.

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

And you said companies plural. In, in, in what you just said there. So just to clarify, can operating partner, are they typically with one company or are they working many.

ed--yes-_1_07-22-2025_145945:

they're actually a cross portfolio and it is, it's going to be circumstances that will cause them to become embedded in a company.

rory-liebhart_1_07-22-2025_145945:

Right. Uh, IE we're sacking the CEO and you need to come in and actually

ed--yes-_1_07-22-2025_145945:

Yeah.

rory-liebhart_1_07-22-2025_145945:

again. Sorry. Yeah, yeah. That's that. But, but I think that's part of the point, Emily, is, um, you know, these folks, especially if you're have somewhat of a unified. You know, roadmap with the, the portfolio companies that the PE group owns. Like you want that kind of consistency across those businesses. And they, like, as I said, they're kind of that connective tissue. It can kind of steer things a little bit. Um, and they're usually pretty influential individuals and can actually make things happen.

emily-sander_1_07-22-2025_145945:

Well, you gave that example where I think, I think one or both of you have been CFO for all of the Port cos in a fund.

rory-liebhart_1_07-22-2025_145945:

Uh, I think Ed has done a little bit more globe trotting than me. Uh, I've done, I've done that. I've, I've, journey I guess is like, I've been within the same family of companies, but I've both had CFO and president role, so I like, I've jumped around, but Yeah. to different roles. But yeah. Point is, yeah, like, you know, typically there, there's a desire to have unification across businesses within the umbrella of the PE group. Or ownership group for that matter, because I've done that also for, you know, uh, let's call it corporate owner group, where we are basically operating subsidiaries, but, you know, different businesses. But trying to march to the same sheet of music within the same, you know, uh, vertical in the company. So,

ed--yes-_1_07-22-2025_145945:

Yeah. And in, in my case it was, there was a, they would have operating partners, of which I kinda served in the CFO type role for the fund. each fund, so I was like in fund five, fund five had a set of shadows. Fund six had a separate set of shadows and fund seven had a separate set of shadows that they plucked out either off the, you know, kind of brought in or plucked off their Rolodexes. And that'cause their concern. The concern there, and this goes back to kind of how private equity is structured, is they, you know, the fund is basically paying our salary at that point. So now the private equity GP isn't paying the salary. The, the fund companies are paying our salaries. And what they didn't wanna do was go, well, this fund and this fund, so fund five and fund six in my case, had different LP structure, so different lp, different LP ownership. so they're like, look, you, you, you know, we can kind of charge off to these, to these companies in kind of proportional amount. And it's the same investors over here. It's a different set of investors or at least different percentages. And so we can't have you cross over. So they actually really, now these funds were in the, the. Big, big, big, like 10 figures, so it was not, or almost 11. So it was not like we were small, tiny little funds. These were big funds

rory-liebhart_1_07-22-2025_145945:

No.

ed--yes-_1_07-22-2025_145945:

and we were, you know, kind of, but they, they would firewall us off, but I would, I had a portfolio of companies to look at that included specialty finance, restaurants, mortgage companies. Uh, REO company. You know, it was a bunch of, a bunch of different stuff in there that we had to, that we had to over. We had to over

rory-liebhart_1_07-22-2025_145945:

That was, that was your own form of, uh, performance punishment. I think, uh, you know, you're just, just, you know, bumping along, running a business and they're like, they're like, you're like, uh, sorry buddy. You're plucked out. You're gonna have to untangle us from a web of shit, basically. Uh, which you did. So, you know, uh, selling airplanes and, you know, uh, yeah, all the good stuff, wind stuff down, bankruptcy, packaging, all that good stuff good times.

emily-sander_1_07-22-2025_145945:

If operating partners are kind of a second stage career or even third stage career type of move, how does, if someone's listening, it's like, you know what? I could, I could be moving into that. I have the background for that. How do you become an operating partner?

ed--yes-_1_07-22-2025_145945:

You, you better have. was about to say, you better have gotten blocked by you either. You're either coming out of a publicly traded company or a high profile unicorn type private company. or you've got a really strong relationship with the private equity firm, and there's an expectation, and Rory kind of hit on it. There's an expectation with the operating partners that you're gonna be investing. As a general partner does.

emily-sander_1_07-22-2025_145945:

Ah,

ed--yes-_1_07-22-2025_145945:

it's

emily-sander_1_07-22-2025_145945:

okay.

ed--yes-_1_07-22-2025_145945:

not just a, you are also gonna write a check for the privilege and you're gonna be co-investing alongside the gp.

emily-sander_1_07-22-2025_145945:

You got skin in the game.

ed--yes-_1_07-22-2025_145945:

co-investing alongside the LPs in many cases, in, in that portfolio. So that's part of, part of your win.

rory-liebhart_1_07-22-2025_145945:

Mm-hmm.

ed--yes-_1_07-22-2025_145945:

you participate in the GP return,

rory-liebhart_1_07-22-2025_145945:

Yep.

ed--yes-_1_07-22-2025_145945:

of your risk is you generally write a check for the privilege. And so, you know, they, you may, you may get hired as an operating partner with a salary of$300,000 a year. You're gonna be expected to write a check for a minimum of a million dollars the GP and become a partner and. You've got the upside of a certain percentage of the GPS portfolio

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

And you're working your butt off.

ed--yes-_1_07-22-2025_145945:

you're normally working. They, I wouldn't say they're working as hard generally as the, uh, as the operators are.

rory-liebhart_1_07-22-2025_145945:

Right.

ed--yes-_1_07-22-2025_145945:

you are, you are definitely not retired

emily-sander_1_07-22-2025_145945:

Yeah. Yeah. Yeah.

ed--yes-_1_07-22-2025_145945:

paying for the, you're paying for the privilege. Um, now again, as Rory noted, you will do if, if you're with a good private equity firm and they've got a good set of investment thesis and you are doing your, are doing your job well, it's an incredibly lucrative business, and you are not working a hundred hours a week or 75 hours a week. You're normally at a 40 to 50 hour a week job. You're more in a consulting type role unless you get parachuted in. which case, then you've got a, a shit show on your hands and you're gonna be, you're really gonna be

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

So you just have that option looming over you at any time.

rory-liebhart_1_07-22-2025_145945:

Yeah,

emily-sander_1_07-22-2025_145945:

Para

rory-liebhart_1_07-22-2025_145945:

then it's

ed--yes-_1_07-22-2025_145945:

that

rory-liebhart_1_07-22-2025_145945:

you, you'd be hard pressed to say no because your, your, your investment capital's at risk on that deal, you

ed--yes-_1_07-22-2025_145945:

right.

rory-liebhart_1_07-22-2025_145945:

So,

emily-sander_1_07-22-2025_145945:

okay.

rory-liebhart_1_07-22-2025_145945:

but yeah, it is one of those things that seems to me like one of the, one of the roles in life that's more of a meritocracy.'cause you, like I said, you don't just, you don't just like apply for that on like Indeed, you know, like you're recruited heavily based on your levels of success that you've

emily-sander_1_07-22-2025_145945:

who, who, uh, who's on that interview loop? Are the LPs interviewing operating partners? How does that work?

rory-liebhart_1_07-22-2025_145945:

Hmm. That's a good question.

ed--yes-_1_07-22-2025_145945:

I've never seen the, I've never seen an LP as part of that process. Part of that is because they are limited partners,

emily-sander_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

not their role. It generally is,

rory-liebhart_1_07-22-2025_145945:

the, in the PE group.

ed--yes-_1_07-22-2025_145945:

yeah.

rory-liebhart_1_07-22-2025_145945:

yeah.

ed--yes-_1_07-22-2025_145945:

The managing, the managing, managing directors and

rory-liebhart_1_07-22-2025_145945:

yeah.

ed--yes-_1_07-22-2025_145945:

the, and the senior managing partner at the, at the PE is generally gonna be your decision.

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

Yeah. Do you think this trend is going to increase, stay about the same as what it is now or decrease?

ed--yes-_1_07-22-2025_145945:

Well, I've certainly seen an increase significantly from, you know, 20 years ago when I was first in pri 25 years ago. When I was first in private equity world, operating partner concept was not as common. And I mean, we, like I said, I was at a nine figure, 10 figure fund and we had, we had operating partners, but that was not. You know that when we went, were acquired. Um, before that we had been acquired by a smaller private equity firm, no operating partners. Um,

rory-liebhart_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

now, I mean, the last, the last PE firm we came out of them, they had operating partners and they were, they're relatively small in

emily-sander_1_07-22-2025_145945:

Yeah.

ed--yes-_1_07-22-2025_145945:

so, you know, I think it's, I think they recognize, and Rory had had kind of cited the McKinsey study where. There's a r there's a tangible ROI to having a good solid operating partner or operating partner strategy. And so these guys don't leave money on the table. That's, that's not, that's not their normal vo. when they see that, that's, you know, something that can increase their at a relatively low risk, increase their return, um, you know, that brings a risk premium down on that investment and allows it to, to kind of accelerate the growth you're gonna do that.

rory-liebhart_1_07-22-2025_145945:

Yeah, I do think that the, maybe the dynamic could change is the type of personnel like so. I feel personally like we're in the midst of a really rapidly changing technology landscape. I mean faster than maybe we've even been used to in recent times. you're gonna start to see many more CTO or just more like even chief architect types, know, sitting as operating partners in pe. You know, folks that really understand how to. Make ai, uh, utilized in, you know, everyday business, whatever, however you wanna put it. I'm not a technologist, so I'm probably not saying it the right way. All I'm saying is where you might have seen. CEOs and CFOs and so forth on is the types of operating partners. Now, it's gonna be much more technology, product people to help their operating companies take advantage of the zeitgeist of ai, which we find ourselves in. If you can somehow attach.ai to the. Domain that you're on, like somehow that increases enterprise value. So, you know, I mean, I just think there's something to that and so, you know, it'll continue to evolve as, as these things do. But yeah, certainly a lot more technology orientation, I think product as well.

emily-sander_1_07-22-2025_145945:

All right, so a little bit of info on operating partners and probably a potential future pod on board dynamics.'cause that was.

ed--yes-_1_07-22-2025_145945:

Oh boy.

emily-sander_1_07-22-2025_145945:

Interesting that that might be a multi-part series,

rory-liebhart_1_07-22-2025_145945:

Yeah.

emily-sander_1_07-22-2025_145945:

for that. But yeah,

rory-liebhart_1_07-22-2025_145945:

hits episode for us

emily-sander_1_07-22-2025_145945:

we'll close it out here. We need like a catchphrase as we outro. What should our outro phase be? Just like, I don't wanna just like scream PS'cause that could be packed,

rory-liebhart_1_07-22-2025_145945:

hashtags.

emily-sander_1_07-22-2025_145945:

that could be taken out of context. Um.

rory-liebhart_1_07-22-2025_145945:

Hmm.

emily-sander_1_07-22-2025_145945:

We think about it.

ed--yes-_1_07-22-2025_145945:

you.

emily-sander_1_07-22-2025_145945:

If listener, if you have a suggestion, drop it in the comments, let us know.

ed--yes-_1_07-22-2025_145945:

That would be

emily-sander_1_07-22-2025_145945:

Let these bad boys out otherwise, thanks, ed. Thanks Rory.

ed--yes-_1_07-22-2025_145945:

I.

rory-liebhart_1_07-22-2025_145945:

Thank you. Enjoy your alpha.