Keep pulling the thread on Michael Choe.
Charlesbank Capital Partners has replaced traditional five-year LBO models with a proprietary, homegrown modeling tool called the "two-year fan of outcomes."
Internal analysis at Charlesbank found that a portfolio company's pre-tax earnings growth within the first two years of ownership is highly correlated with and predictive of the investment's ultimate success.
Michael Choe believes that specialized, asset-light human capital services companies represent a misunderstood asset class that can generate software-like returns on capital.
An analysis of Charlesbank's historical transactions found no correlation between an investment's entry multiple and its success; a weak negative correlation was observed, where lower-multiple deals had weaker results.
The average free cash flow yield of a North American private equity buyout is now in the low single digits.
Michael Choe predicts that the "leverage excesses" from the 2021 market will likely lead to a wave of liability management exercises (LMEs) and restructurings in the private equity industry over the next few years.
Charlesbank Capital Partners is a manager of middle market private equity, credit, and technology opportunities with $22 billion in assets.
Charlesbank Capital Partners views its investment process as a manufacturing system where the "atomic unit of production" is a decision.
Charlesbank's proprietary "fan of outcomes" model is a Monte Carlo analysis that runs 10,000 simulations to model the two-year future of a potential investment.
Charlesbank's investment model incorporates a generic 12% probability of a recession occurring in any given year, equivalent to one recession every eight years.
The U.S. CPA industry is a $40 billion market, excluding advisory revenue, which Charlesbank views as an attractive sector with low private equity penetration.
Charlesbank's analysis of its historical investments found that total earnings growth, including acquisitions, was almost as strongly correlated with returns as organic growth alone.