Schwartz talks value investing, current market challenges for private equity
Business, Technology, Internet and network concept. Young businessman working on a virtual screen of the future and sees the inscription: Private equity

Since Gerald Schwartz founded Onex Corp. in 1984, both his firm and the private equity industry have come a long way, with the size of the asset class skyrocketing.

“In a way, success is just standing there and having the wind at your back for 40 years,” said Schwartz at the CFA Society Toronto’s annual investment dinner on Nov. 7, 2019. “I’ve been unbelievably fortunate to be in that position, to just be part of the growth of the entire industry. And honestly, I put a lot of our success simply due to that fact; it’s like living in a bull market for 40 years. It’s unimaginable.”

After Onex was established and found success early on, it went public in 1987 and is still listed on the Toronto Stock Exchange.

The firm has been extremely successful over the years. “Since inception, Onex has generated a gross [multiple of capital] of 2.6 times, resulting in a 27 per cent gross [internal rate of return] on realized, substantially realized and publicly traded investments,” noted the company’s third quarter 2019 interim report.

Schwartz touted the quality of the people at Onex and value investing. “We care a lot about values and we care a lot about value. We are a value investor. We always have been.”

However, the road to success isn’t always straight. “Have we had great returns? Yeah. Has it been a straight road there? No.”

It’s also important to think long term, said Schwartz. “We don’t produce short-term results. We don’t measure short-term results. And that’s tough sometimes for analysts to evaluate and try and put numbers on. But it’s where we are and I think it’s the right answer for us. And quite frankly, I think, in today’s private equity market, everybody should be a value investor. And if you’re not a value investor, learn to be, because it’s going to count.”

Private equity is the best risk-adjusted business around, he said, though he noted it’s a very difficult time for the industry.

“There is so much capital available and it’s so, almost desperate, to get invested and move onto the next fundraise. It’s hard to find. . . We can find great companies. And we have. And we’ll continue to, but can we actually buy them? Not so easy these days.”

In response, he noted, the firm will do fewer, yet probably larger, transactions as this thins out the market. “When you start investing a billion dollars of equity in each transaction, or $700 or $800 million in it, it thins out the market. And it makes it a little easier. But boy, this is a tough market.”