On his path from family business operator to co-founder, chairman and CEO of Pritzker Private Capital (PPC), Tony Pritzker turned lessons learned from his family’s tradition of building businesses into a disciplined direct investment model.
Pritzker started his career working in operations for the Marmon Group with his uncle.
“We had a history of, in our family, buying a bunch of different businesses and helping them to optimize and operate at the best level that they can,” he says.
The experience he gained in operations and investing laid the foundation for his next step, when the family broke apart their businesses and each member of Pritzker’s generation received 1/11th of the total.
“My brother and I put our money together and built a direct invest business along with our asset allocation model efforts,” he says. “We weren’t looking to buy distressed businesses — we wanted to get it at a good price, but we wanted to pay a fair price. We looked to optimize businesses through both their balance sheet management and through add-on acquisitions.”
That collaboration became PPC, which brings both capital and operations expertise to its family of 17 companies.
“We don’t call it private equity, we call it private capital, because we’re looking to build things for the long term,” Pritzker says. “What makes us desirable as a partner if you’re a seller of a business or a management team is that we’re super professional, we’re long-term focused, we give you a whole business development background that you don’t have to hire yourself. And we’ve got operating capabilities to, for example, help to digitize the business, help to implement AI in today’s world, help to analyze your capital expenditures.”
PPC has evolved since its founding. When Pritzker’s brother, JB, decided that he wanted to get involved in politics, ultimately becoming governor of Illinois, he stepped away from the management of the business. At around the same time, PPC was launched to bring in outside capital.
“To bring in outside capital means you have to commit to being with the business for quite a long time. You should be getting returns anyway, but you have to service your outside investors. There’s a lot of communication,” Pritzker says. “We looked for partners that were families. We created Pritzker Private Capital as a club, in a sense, that allows family investors to make a commitment that would then allow us to respond to opportunities at the pace that the market demands.”
From these experiences, Pritzker has drawn a number of lessons about how family investors can be successful at direct investing. One challenge that families face when considering branching out from running a business is how far to move from the business they know so well.
“If you buy a company that is not in something you know, what are the challenges?” he asks. If the company is in an adjacent industry, it may be that the family’s knowledge will be enough. But for a diversified direct investment strategy, the family will need people who know different parts of the market.
To execute direct invest deals takes both capital and talent, Pritzker says.
“You need to be able to execute with speed and certainty in today’s market, and you need a talented team,” he says. Family office investors will be competing against private equity firms and others with deep pockets and speedy operations.
The team behind the acquisitions is important, and PPC’s experience illustrates the scale of the work required. On average, PPC completes 10 add-on acquisitions to its businesses each year.
“That’s a lot of work, and you need lots of people to do that,” Pritzker says. “We now have 17 different companies in our family of companies. That means you’re relying on the teams who are running the companies to do really well, plus you need to have a whole team to help them optimize.”
Once the talented team has made a direct investment deal, the challenge for the family office becomes how to keep all the team members occupied.
“If you build a direct invest capability, you also have to keep these folks busy. And we have the capacity and the desire to do that,” Pritzker says.
Pritzker Private Capital’s large and varied family of companies has helped keep talent engaged and has also allowed PPC to offer specialized expertise to those companies.
“They might not be experts at financial markets. We happen to have an expertise in financial markets. They might not have the ability to go out and execute on a lot of add-on acquisitions as a single business. We have that capability to do all the diligence, to understand what the capital structure needs to look like, and so on,” Pritzker says. “We built a team doing this, and that’s how we evolved into becoming PPC.”
Building such a team can be a challenge, though, since talented business professionals have numerous options.
“It’s a war for talent, but creating the right culture allows people to like working with you,” Pritzker says. “It’s really about getting good people to work with, then giving them the direction of where you want to go — and then giving them the breathing room to do the things that they need to do.”
This culture of teamwork benefits everyone.
“Why hire good people if you’re just going to do it all? I’m able to do more because I have talented people around me,” Pritzker says. “I want to work with really good people, not only who have good values, but also good people who are good at what they do. Because it allows me not to have to be the expert at everything.”