How Ken Hersh Built a $20B Energy Empire: Risk, Resilience, and The Fastest Tortoise

We changed the way that private equity got defined in the energy space.

Ken Hersh is President and CEO of the George W. Bush Presidential Center, a nonpartisan institution that advances policy, education, and engagement initiatives. Prior to his current role, Ken co-founded and led NGP Energy Capital Management, one of the nation's largest natural resources private equity firms, managing over $20 billion across multiple funds. With decades of experience as an investor, entrepreneur, and philanthropist, he has played a central role in shaping the energy finance landscape while also dedicating his efforts to civic and educational causes.

In energy, it's not a hard equation. It's volume times price, that equals revenue, minus your costs.

The fastest horse— what does that mean?

Slow and steady wins the race. Move out of your comfort zone and you might take two steps forward and one step back, but that's okay. It's human nature to be optimistic. What happens if it starts going south?

I'd like to start with the being uncomfortable, going from private equity, energy, and then nonprofit world. And in your book, you talk about the desire or putting yourself in places where you're not the smartest in the room. You don't know what's going on. Now, did that stem from a desire to learn more and to do that, or was it just coincident that that's what happened and you just realized that you were good at it?

I think more the second because, and thank you for reading the book. I appreciate it. I knew there was somebody out there who had read it. The, you know, the feelings that I had that were most satisfying were when I look back on things and say, hey, I did that. And when I started it, I had no idea, you know, and so I just kind of reverse engineered that feeling. To say, um, I think that no muscle gets strengthened without being stretched and stretched to the limit. I apply that in the workforce by saying, if you're not completely panicked on your first day on the job, you're in the wrong job. You need to be like panicked, throwing up in the shower panicked, like, I have no idea what I'm doing. I am the admissions mistake. I am the fraud. I don't know why they hired me. And then you just go in there and you realize, guess what? There are a lot of people to help you if you have a question. People want you to succeed. Nobody hires you and hopes you fail, right? And, but you know, as a young, younger person, that was, I had to learn that the hard way when I ended up on Wall Street and I had no idea what I was doing. And my first day on the job at Morgan Stanley, they said, here's a spreadsheet. Why don't you do a debt amortization table?. And I said, what's a spreadsheet and what's a debt amortization table? I was a political theory major, liberal arts, no clue. And then I did okay there after a couple years. I look back and go, huh, that was something. And so to me, that feeling, chasing that feeling, people shouldn't be afraid of it. And so that's where I say every plant should be repotted at some point. Get out of your comfort zone. And implicitly, what are you doing when that happens? You're taking a bet on yourself. Well, that's the best bet you can make. I don't like to bet on other people that I don't know. So, you know, that, that to me just became intuitively obvious after having experienced it. And so that's, that's where that came from in the book.

Do you think that panic triggers that fight or flight sense, which obviously makes your brain more receptive to learning lessons? And, and just being more adaptable because like you said, if you're in that rut or, you know, if you're just driving to work every day, that 30-minute commute is 5 minutes because you're doing the same routine. But when there's traffic, it feels like forever. If you're in that panic state where you don't know anything and you put yourself there, your brain has to figure it out and possibly be better at learning the job.

Yeah, absolutely. I would completely agree with that. And it's a little bit different than like in a, on a sports field, you know, if you're taking the shot and there's nobody there but you, I've just found in, in 99% of settings, there are people cheering you on. There are resources that you don't even know you have. There are people there who would answer a question for you. There now in today's world, which did not exist, you can go online and, you know, ask Gemini or whatever. And I mean, I, I just, to me, it's not even an issue. It's just not even an issue. Don't be afraid of it. And you should actually seek that moment out. 'Cause otherwise you're going to end up in a rut and you're going to end up just really being unsatisfied. I like that feeling of pushing, of asking, of striving, and not for the sake of it, but I know that it's going to be okay and you're going to come out of it on the other side pretty well. And you're going to look back and go, hey, I'm glad I did that. You know? And so that to me is just so satisfying. And so that's where I say that for an individual, kind of talking about what this book has become, which is kind of a guide for generalists everywhere. I ended up in a completely technical area with no technical expertise whatsoever and ended up making a nice living and building a business in a technical industry that I knew nothing about. It was really kind of fascinating when you think about it. But so, if I were to talk to people, I'd say, just go try. You can't do version 2.0 till you got 1.0 out there. You know, so get 1.0 out there and then work on it.

What makes you think people don't ask for help? Because what I'm hearing in all that is just simply don't be afraid to ask somebody for help or help for guidance or ask for mentorship because it feels like so many people don't do that.

Yeah. I don't know. I mean, that's probably for some of your other guests to figure out, you know, get some psychologists on the phone and ask them. There are, you know, it, it might take some courage. It might take some intellectual honesty, but from a leadership standpoint, it's actually easy because one of the things, because I lived it as a junior guy, one of the things I knew when I would lead an organization is create an organization where that environment, it was acceptable in that environment to ask for help where, you know, you cheer people on. Did you know Lane, he didn't know this and he walked into my office. I want to applaud that. Start creating incentive structures where that's approved instead of discouraged and you'll, it's amazing what happens.

And this is where that culture is strategy type mindset. Yeah.

With the Bush Center, I, you know, I held office hours, I walked around a lot, you know, I wanted, I wanted to be transparent. I wanted to be open. We had a lot of people who this was their first or second job. They were very young. And so, you know, being able to walk into my office and say, hey, I have a question and not feel like, oh, he's gonna think I'm stupid or whatever. I mean, that creating that environment is really job one. If you can create that open communication, Communication, trusting environment, you're, you're gonna win.

So in 1988, I believe it was, you were a founder of Natural Gas Partners with Richard Rainwater, and you were in your 20s at that point in time.

Correct.

Talking about first or second jobs, you'd gone to Morgan Stanley. My understanding of Rainwater is he's sort of an iconic private equity figure, and he was known for taking small pools of capital and turning them into very large pools of capital, which the two of you succeeded with, uh, Natural Gas Partners. I've read that you had a 3,000% return, um, on, uh, your investment in energy you transfer partners.

That was a good one. You only need a few of those in life.

I was going to say, you just need one of those to make the math work. But prior to that, he was sort of known for finding great operators and backing them. And you were a very young man. How did you find yourself partnering with Richard Rainwater at that age?

We were an aberration at the time. And you mentioned Richard as a private equity guy. Back in the day, there was no such concept as private equity. We called it principal investing. They didn't call it family office. They just called it spending money. I don't really know. At the time, Richard had bought into a thesis that McKinsey consulting firm was promulgating around the natural gas bubble, that supply is doing this and demand is doing this and prices are gonna go from here to here. And I happened to be, had written Richard a cold call letter and he asked if I could come down, which was another story which I describe in the book, which was, just bizarre that he actually reached out and called me as a result of a cold call letter before I could call him, which was amazing. And I ended up in his office and I was in his office on the afternoon that McKinsey had been in his office that morning. McKinsey had presented him this study and he was sitting there. I was at his guest chair and the desk was completely empty except for this blue McKinsey book. And he spun it around to me and said, well, what do you, you in the energy group at Morgan Stanley, what do you think of this? And I was a, you know, I was in the middle of my first year at Stanford Business School. I, I hadn't remembered enough of the energy investment banking buzzwords to be dangerous. But I opened up and I started flipping through it. And I looked at it, there's curves like this, you know, supply and demand and, you know, prices are going to go from here to here. So, I closed the book and I said, "Tell you what, Richard." I'm 25 years old. I can't believe I did this. "How about for my summer job, I put a study together on how you would invest given the McKinsey view of the world? I'm not going to challenge their view of the world, but if that's how you would invest, Who would win? Who would lose? And he said, write me a proposal. And so I wrote him a proposal, and that formed the basis of the fund. So it wasn't really an operating business to go take advantage. He had done an energy deal, kind of an energy distress deal before this moment in the drilling rig business, and that was kind of percolating. This was much more of an arb play. We were going to buy low and sell high. And McKinsey says it's going to take 3 years. Natural gas prices go from here to here in 2 years, 3 years at the latest. So he convinced the Equitable Insurance Company, let's put some money together. It'll be a 3-year deal. I proposed to my girlfriend in California, who my now ex-wife, and said, hey, Julie, we're going to move to Texas. Why? I said, it's going to be a 3-year deal. She says, how? I said, because supply is doing this and demand is doing this. Prices go from here to here. We're going to buy low, sell high, find something else to do. That is a dead true story. We got in business in November of 1988. The McKinsey thesis was dead wrong, like dead wrong. Natural gas prices went down for 7 straight years. Wow. 7 straight years. And we were in the middle of year 3 or 4 of this. And Richard said, let's give the money back. And I said, whoa, whoa, whoa, let's not give the money back. We had done a few deals and we had done a couple deals that worked and a couple deals that didn't work. And so I looked at it and I said with my partners, and I have to say that David Albin was my partner, and John Foster and Gamble Dolben, the 4 of us that Richard kind of cobbled together and said, y'all go. We kind of sat there and stared at each other and said, wait a minute, we don't want to give the money back. Let's— we still have time to invest it. We had a 7-year investment period. We said we'd done a couple deals that worked. Why did those deals work? Prices went down, right? These other deals that didn't work, we could tell why they didn't work because prices went down. I said, well, let's stop taking price bets. Let's look at the deals that worked and ask ourselves why. Well, in energy, it's not even— even a liberal arts guy can figure this out. It's not a hard equation. It's volume times price, that equals revenue minus your costs. That's it. Volume times price minus cost. I said, if prices are going down every year, let's just find people who can make it up on volume and lower costs. That's what happened in the couple deals that worked. We found great operators who kept averaging down and who found someone else's trash and made it their treasure. Okay, but looking in old fields, lowering costs, increasing volumes, and just managing it instead of managing it by exception, waiting for things to break. They were proactive and kept wells on. Imagine that. Rocket science. Okay, let's just do more of that. And so we completely pivoted our business plan and said, let's forget about, about looking at the assets. And in fact, let's just focus on the people and let's find people who understand how to make money in a down environment. Let's tell them, well, when prices go down next year, then how will you, how will you survive? Well, you ask that question, The sharp people know exactly how to answer it. The ones who are just playing prices, you know, they don't know what they're doing. So anyway, it became relatively straightforward on what we were going to do. And if prices went up, then that was just a bonus. So when prices did rebound a couple of times in the mid-'90s, then we did fine. We actually did better than fine because we were positioned right and we weren't reliant upon rising prices. The other thing we realized is all oil and gas wells deplete over time. So, if we're going to exit this business in 7 or 10 years, the assets we're looking at today are going to be largely depleted. So, what we're going to have to sell in 7 to 10 years is what this management team did with our money and the cash flows that came off these assets. Well, if the cash flows are plus or minus 10%, but the management was really good, then you're going to have a real pile of assets to sell. If you nailed the cash flows exactly to 3 decimals, but management was no good, You're not gonna have anything left to sell. So we said, you know, this is not hard, let's just execute. And we basically became more of like a headhunter model than a private equity model. And we rewrote the script and the methodology on how all capital got allocated to oil and gas and what NGP was doing. People looked at us and said, they have no assets, they're just starting companies. We found 2 or 3 great people that knew an area really well and they had come out of Conoco or Chevron or Texaco or wherever, and they knew an area and they knew where the bodies were buried and they knew where the old wells could be enhanced. And we said, well, let's back them and let's give them, let's basically give them an equity commitment. And people say, oh, MGP, they got no assets, they have no engineers on staff. Those guys don't know what they're doing. Today, there isn't a dollar that goes into the oil and gas sector that isn't backing people with no assets. And there were, at the peak, now there's about 10 firms that do it, but at the peak, there were probably 40 firms doing exactly what we did. So I mean, we changed the way that private equity got defined in the energy space. And it had something to do with the independent, with the unconventional shale revolution, which changed the world. And that was brought to you by independent oil and gas producers. It was not brought to you by Exxon and Chevron. And it was brought to you by entrepreneurs who had access to capital and many of who had access to capital, all of whom had access to capital in the methodology that we created and then other people end up doing. So it really, I mean, when I look back, that little moment was really seminal in what we did and it was because of failure. And Richard said, "Ah, get the money back." We said, "No, let's figure out how to do something.".

Anyway. You think about those points in life where decision could go one way or the other. It's kind of remarkable to me, thinking about myself at 25 years of age, to think of you as partnering with Richard Rainwater and recognizing that the thesis didn't work, but that there was a piece of what you were executing that could be exploited further. So that 3,000% return— and that was.

You know, an energy transfers case. Ray Davis and Kelsey Warren had a little business.. And they were looking to— we were looking to grow it and started on a golf cart with— at a golf outing with me and Ray Davis. And I said, you know, Enron is collapsing. All these midstream companies are going to be shedding assets. Why don't we stand ready to buy something? And he said, okay. And I said, in fact, why don't we put some money into your company now? We put in money at that moment, made a commitment, and they had a little business. And then we ended up buying $265 million a set of midstream assets from a Kansas utility that revolutionized what Energy Transfer had at that moment. And then they just built from there. And, and it was a— it was just another example. Find great operators like Ray and Kelsey, be a great financial partner. We do not try to micromanage them. We help them on the financing side and the capital structure side. What I like to say is we help you on the right side of the balance sheet. We don't know anything about the left side of the balance sheet. And, you know, let them operate the damn business 'cause that's what they're good at. And then get out of their way and cheer 'em on. And anyway, so that turned out to be a nice transaction.

How long did that last? You started the business in 1988. When did you fully exit?

That opportunity was a 2001, 2002 vintage investment, and we were exited by, 2006.

So, that 3 years in Texas you promised your first wife, how long did that last?

30 years.

How long did the marriage last?

30 years. But anyway, that was a different set of circumstances. I also wrote about it in my book. But another thing I wrote about in the book, the fog of the future. We all can think about the direction we're headed and we kind of know what's going to happen tomorrow. Tomorrow's relatively clear. A month from now, clearish, a little foggy but clearish. A year from now, clearish. 10 years from now, foggy. Some people are afraid of that, like, oh my God, I got to figure out what I'm doing, you know, where I'm headed. And I say, you know, let that fog of the future excite you. See what happens. Don't get so locked in that you say, we're doing— this is what I'm doing, and this is what I'm going to do for the next 3 years or 5 years, and then I'm going to go here. Because by over-scripting your future, you're really closing off opportunities without knowing it. If something were to come in and you're so single-minded and not picking up a phone or not saying, "Huh, what if?" You know, you really close off something. So, anyway, that's what happened in our business and we meandered through a wildly cyclical industry. We took a lot of the cyclicality out of it by our investment style. There were near-death experiences. There were times that we had major investment failures and we had to learn again. And so that's, you know, life is humbling that way.

You talk about the fog of the future, and I was sharing with Ryan earlier, I'm an instructor through the Business Leadership Center at SMU and I lecture on alternative investments and mergers and acquisitions in the MBA program. And after my lecture yesterday, several students came up and they said, you know, I'm going to be graduating, I'm going to have my MBA, and I got these 2 or 3 things I'm thinking about, but I think AI is going to put this out of business and I think this problem is going to probably— so what do I do? And my answer was, I don't know. Right. I don't, I don't know. But you're young and you're smart. Take the best path where you feel the most passionate. And it won't work out the way you think. Correct.

Right.

Yeah. Better or worse.

But, you know, you don't overthink it. Don't overthink it. Especially for your students. The things that matter— are they going to be around people with high integrity? Are they going to get enough to do, you know, basically, are they going to have a good opportunity set with good people? If whatever they work on doesn't work, nobody's going to say, oh, well, that first year, the whole thing cratered because that first year MBA, you know. But if you know you're— and no, you know, so you're not going to be beholden to that whole sector. And like you said, you'll end up pivoting and industries change and ebb and flow. And, and so you got to, you got to be able to, you know, keep your head on a swivel sometimes. But the most important thing when you're getting started is are you going to get enough of interesting things to do and are you around people that are high integrity? And smart. Other than that, you're fine. And a lot of people will fall into a trap of chasing a dream with people that aren't so great or something that might be a little more flimsy. And anyway, and then they go, I've wasted time. So there you got to cut and run quickly, which you don't like to do.

It sounds like you like to keep everything simple, you know, and like, you know, like you said earlier, volume times price minus cost. It's that simple. And when you say it like that, it's like, well, why isn't everybody doing that? What was so new about this simple concept? And then you talked about finding good operators and then being a good financial partner to them. Does that mentality, like when you talk about yellow lights don't turn green, does that mean in your mind the yellow lights is complexity and trying to make a hard deal into a simple deal? And then in just recognizing that, hey, there's so many simple opportunities, just stick to that.

Right. Well, thank you for reading another thing out of my book, which was good. And I've got— I could be here all day. You know, yellow lights don't turn green. There are several meanings. As you said, there are times where you are looking at something and you know in your heart of hearts that this is a— that there's a bump in the road and you might overexplain it. Or you might get your, you know, escalation of commitment is a real problem in the investment business. I spent 6 months on this thing, you know, we got everybody working on it and you find some damning information and you kind of look the other way because it's not totally damning. It's only a little bit damning. And, you know, and you, and, and you're dug in and you think this deal's going to get through investment committee. And so you don't want to, you know, again, back to the culture, you want to create a culture where somebody is rewarded for saying timeout. I've been the champion, but I'm changing my mind. If you can do that in the investment business, you win. But that to me is to appreciate that yellow lights don't turn green. When I look at our mistakes and reverse engineer them, I kick myself. I say, you know what, we saw that. And had we acted on that, you know, it was a small little problem and we could have dealt with it before it became a big cancer. And that happens with people. People are in the wrong spot. Maybe it's not a good fit, but you can just tell with people and you'll see people say, I'm going to get them coached and we're going to— and you sit there and say, you know what? Maybe if you deal with a personnel issue early, early, early, most of them are totally correctable and fixable and whatever, um, and overcomeable. But if you wait too long, then you're like, oh my God, I got the wrong person in the wrong spot and now I'm in trouble. So from a personal standpoint, that's what yellow lights don't turn green. From a, from a business standpoint, um, it's about intellectual honesty and trying to avoid very, very well-documented biases— groupthink, escalation commitment, recency bias, selection bias. I mean, human beings are terrible decision makers. I mean, it's amazing that the world even functions like it does. There are wonderful books written by the sociology departments around this and the assessment of risk, and people don't assess risk very well. So here I show up as a total generalist, you know, I just said, well, this shouldn't be so hard. Anyway, not that it's— I don't want to trivialize it. It's not that we didn't do some, you know, modeling and everything else. But if I were to break it down really simply, it's that people assess risk deterministically when it's really probabilistic. And they'll do a discounted cash flow analysis and say the value of this business is $122.3572. You know what? I'll tell you it's not. I don't know if it's over or under. I'll take the difference. It may be higher. It may be lower. The odds of it being that number is rounds to zero. Okay. But what you're doing is you're taking a stab probabilistically saying, well, in this range of discount rates and this range of growth rates and this range of terminal values, well, in a terminal value calculation, there's an implicit interest rate assumption, which has an implicit read on the future of the economy at that moment in time. So if you're selling the business in year 10, there's going to be, and you stick a terminal value interest rate on it, or terminal value that has an implicit interest rate in it, which has an implicit read on what is happening in the world economy from years 11 to years 20. Well, if you can predict that, you're in the wrong business. So, to me, the way I always looked at things was probabilistically, like what's the risk-reward ratio? I mean, how could we lose all our money? If we could lose all our money, then we better have a really good return. Like really, really, really good return. But if we, if we're only risk, if, if, if on all these different scenarios, we'll get back 90 cents, we'll get back 80 cents. Well, that doesn't, that sounds bad. What if I told you, you're risking a dime, you're putting in a dollar and you're risking a dime, but you might make $2. Okay. So I'm risking 10 cents to make $1.90. That's not a bad risk reward. Now I say, well, how, What are the chances? And we spend all our time talking probabilistically around the scenarios. And that to me creates an air of debate, of discussion, and it gets people less dug in because there's a little more humility in that than saying, oh, I ran the discounted cash flows, it's worth $123,270,000, like whatever.

So what I'm hearing is be aware of the spreadsheet heroes. Yes. You know, the people that are just like stuck to that spreadsheet because if I'm hearing correctly, they're the ones that are like dug in on that. Hey, they're deterministic. It's going to be this.

You can do the spreadsheets and you, but then I always ask, what does it mean to you? Right. You know, and, and, and that develops that muscle, which is explaining it and say, well, what, what if I change one of your assumptions instead of saying, oh no, that'll never happen. I said, no, no, do me a favor. Just change it., and now let's look at the outcome. Yeah.

Before we move too far on the yellow light, like how, how much time do you give yourself to like fully understand the, the issue or the problem? Because, you know, if you look at like a Malcolm Gladwell with his Blink and 2000 Hours, are you looking at something? It's like, I don't understand the problem. Or are you looking at it like.

Oh, that's a yellow light. That's a good question. That's a good question. And that's, that's probably the, the art of it and not the science. It depends on what the nature of the question is. If the nature of the question is how two people are gonna get along, maybe there's a really simple little yellow light that shows up in something completely irrelevant, but you go, hmm, they couldn't agree on this? Right, if I'm evaluating a team, I ask questions like, how do you guys, you know, when have y'all ever disagreed on anything? And how did that get resolved? And is there a leader and a follower here? Are you co-equals? How are you gonna govern? 'Cause nothing's gonna be perfect. And then you just live with it and see if the audio matches the video. Spend time. I would spend a lot of time in people's offices. I would go see them, see where their office is relative to their employees, see how they address each other, just see the culture that's set up. And you can tell a lot about a leader on what their culture looks like. And so anyway, there's lots of little things personnel-wise. Business-wise, a yellow light can show up at any time, at any time. And that's where that intellectual honesty is so important, is to say, is to not explain it away and know when you're justifying it. And when you really like, hmm, I should listen to that one. And it's not perfect. I mean, I was never perfect at it.

I like your comment that people, humans, are terrible decision makers. And my early career was in wealth management. I ran a massive, affluent wealth management shop and a multifamily office. And I was very influenced by Fama, French, Daniel Kahneman, Roger Ibbotson out of the University of Chicago, who really focused on behavioral finance. And what they documented was just that, this incredible litany of explanations of how humans consistently made bad decisions around money, didn't really look at the probabilistic outcomes, measure those, and make informed decisions. Just the opposite. And I saw that over and over and over again as a wealth manager trying to hold people's hands who— my first mentor in wealth management, who was a Dean Witter guy and became part of Morgan Stanley, Robert Gardner, who'd been the chairman of of Dean Witter said, you know, fear and greed, right? These are the things that drive people's decision-making. And so people are responding to very emotion— to very strong emotions when making decisions, right? And they're not focused on probabilistic outcomes, right? So did you have that sense? Is this something that came to you recently, or is this something that as.

A 25-year-old running Oh, God, no. Not at 25.

I didn't know what the hell I was doing. What point did you realize what terrible.

Decision makers we are? After we made some. After we made some bad decisions. And we had the luxury of being around in those early deals. We had a couple of people that really did really well. And I became students of them. One gentleman, Phil Smith, who is written about extensively in the book. You know, thinking about the way he approached oil and gas and how you focus on risk. And, you know, generally speaking, investors and people who are looking to start businesses are optimistic, right? You wouldn't be in here asking me for money if you thought it was going to fail, right? So, you've thought about it, you've dismissed all the bad ideas, and you've come to me with what you think is a great idea. So, you're sold on it. I have money to invest. I want to get to yes. So, by definition, we're really bad. I mean, that moment, we are skewed to say yes to anything. And it's just, so you always just got to guard against it. And so, that to me is the challenge is that is that it's human nature to be optimistic. And so, the question becomes, you're going to be— you feel like this is going to succeed. Yes. I want you— if you're not sold on your plan, then we got a problem. I want you to be sold on your plan. But then I'm going to ask you the questions, what would derail your conviction here? And what would it take for you to go, ooh, we misread the market, that it didn't work? And I will write that down. And I will keep that piece of paper. And I'll hand it back to you someday if I start seeing those things. My job became simply reminding people what they said. Because they would show me 10 or 15-year projections that looked like this. Well, the last 10 or 15 years looked like this. So why are the next 10 to 15 years going to look like a straight line? They're not. And, and every 5 years in the oil and gas business, we had an exogenous event and oil and gas prices collapsed. We had a geopolitical event and it caused collapse. We had a financial crisis. You didn't model a financial crisis, right? Right. So don't tell me everything's rosy. How are you going to react? Because we're building a business together, right? We're not throwing darts. So, if you're building a business, I want to know resiliency. You're going to hire people. Their livelihoods are going to be in our collective hands. What happens if it starts going south? And so, anyway, I just— and it doesn't mean that you are pessimistic. I just want to understand how you're factoring in that part of the calculus because we have to overemphasize that. Because we were already predisposed to the optimistic side. Right. Anyway, so I just lived it. And, you know, I don't know. And there are a few books that were influential to me. Against the Gods by Peter Bernstein. Yeah, sure. Which was man's relationship with risk.

Yep.

Also seminal for me. You know, that's required reading. Moneyball is another book that's required reading, but that didn't come out till later. Yeah. You know, don't fall in love with any— as I say, the asset doesn't love you back. You know, just— it's okay. It's okay if somebody wants to pay more than what it's worth. You sell it. You feed the ducks while they're quacking, right? Because when they stop quacking, there's nobody to buy it.

You talked about intellectual honesty, and you said for the students I'm lecturing, find people of integrity to align yourself with. And I know that kind of sounds easy. It reminds me of investment managers who say, we find good management, and it's sort of Well, that seems somewhat subjective, right? Integrity and good management. It seems harder and harder. And I guess I would say in today's world, it seems even harder to identify where you can hide behind websites and AI and things to really discern who's a good actor and who's a bad actor. Do you have any advice?

Well, I think you put your finger right on it. I mean, our job used to be to determine what is good from what is bad. And then it became to determine what is good from what sounds good because they all sound good. And then we would go out and speak and say, these are the things we look for. Well, and people would spit it back at us. And now with AI, write me a compelling business plan. And then in 5 seconds you get one and you say, not compelling enough. And it rewrites it for you and you get another one back and take that one around. You know what? It sounds pretty damn good. So anyway, but you know what I ask? What are you passionate about? Forget, forget their business plan for a second. Why? What happens if it doesn't work? What would you be doing if you weren't doing this? You know, I mean, I just want to know who they are as people. And, you know, and we are all defined by how we react in unscripted moments. And so just find that out. And that again, liberal arts guy with an MBA talking to some geologists and geophysicists. They looked at me like I was from Mars, and they showed me the seismic lineups. That's good. You can turn upside down. I still can't read it. But tell me, tell me why it's exciting for you, you know? And if somebody was going to show this to you and you were going to poke holes in it, what would you say? Oh, nice. Yeah, I don't know. I mean, I just would say stuff and just, you know, and just learn. And then they'd say, well, there's no holes in it. I'm like, okay, well then forget it. You know, then why do, why does most exploration have a 30% chance of success? You know, I mean, I just, and I'm not, these are, I'm not making this stuff up. I just became a student of the industry. To me, it's all about people. That was Rainwater's magic. He sat there with a clean desk, never, didn't have a computer, had a yellow legal pad with a black felt tip marker, and he would doodle on it. But he was talking to you and he was thinking anyway. So, I mean, and it was all about just, you know, getting in business with great people and that and things like, would you trust— would you trust your kids with them? You know, that's a— that's a good— that's a good litmus test. Yeah. And some of that— we turned down some deals that worked out wildly well, like had my jealousy meter way up there. Yeah. But the people just weren't right. And we said we just couldn't do it. Yeah, it doesn't look like it hurt your track record.

Well, we did all right.

Yes, you did. What do you think is more important for a founder or someone you're doing a deal with? The resiliency factor or the passion for the project?

You got to have both. You got to be passionate because you have to stick with it if it doesn't work perfectly. You're going to have to be resilient, resourceful. Probably the resilience and the resourcefulness I'd weigh overweight a little bit because not everything works out perfectly.. And, but they better be dug in. You know, you don't want people to cut and run as an investor, right? I mean, if somebody threw the car keys at us and says, here, you run the company, we wouldn't know what to do. And so we always had to figure out how to build in that alignment so that we wouldn't be in situations where, you know, management leaves and then you're left with, you know, an empty office. So, They're both critically important.

That's a really good question. I appreciate that because I am in the SME Executive MBA program and being on campus, you meet a lot of people that want to be entrepreneurs and they want to do this and they want to do that. And then you'll hear in lectures and they bring up, well, how do you do the work-life balance? And all I could think about, positive or negative, is like, not going to make it. And I understand that you have to have a work-life balance. You have to have some— whatever that means to you. But if it's coming up this early before you even started, I don't— to me, I hear it's just you're just not in the game. And maybe that's just my own bias.

But it's— I mean, I'd say, you know, you can have work-life balance holistically, like over a course of a decade or 5 years. But this week might look wildly different, right? So I think that you can have work-life balance over a longer stretch, but you got to be ready. If you're leading an organization and your major customer is down and it's 7 PM, you, you're going, you're going back to the office and you're going to take care of it, right? And that's the where the buck stops. That's the moment. That an entrepreneur, you know, and you might call that workaholic, I don't know, but that's different than, you know, what you do on a weekend if, when the customer's not needing you, right? Or do you recharge? Do you spend the time to structure your life to where you can balance things? So I took the attitude, you know, you can structure it holistically. And fortunately, you know, being in the center of the country, we were able to, do a lot of things with day trips and not a lot of— we weren't always out of town. But the days of being on the road for 3 weeks, a month is, you know, that is, that would be hard. So I just think that it's, it's how you define work-life balance. But I think, you know, if you are, if you are going to be passionate about something and resilient, one of the— there's going to be a sacrificial lamb in there somewhere. If you're in crisis mode and you got to drop what you're doing and go take care of it. And that— those moments will be hard to do work-life balance. However, I do believe that, you know, in general, you can structure your year to be balanced.

I like that response, and I've never heard it that way before, where it's looking at the long run, the cumulative effect of the work-life balance, because like in your first 2, 3, 5, 10 years or 20 years, whatever, you work that 7 days a week, 80 hours a week, or whatever it is. I'm being hyperbolic. But then once it is successful, once it is a win, then you can take that month to tour or whatever. Right. So I've never heard it phrased like.

That, and I appreciate it. But not every relationship is conducive to that. Not every personal situation is conducive to that. But back to intellectual honesty, if you are honest that that is your priority and you do not want the 7 PM or 8 PM or 2 in the morning phone call, Okay, I got some functions that are desperately needed in my companies and they don't get those phone calls. That's okay. I mean, I'd rather know that than to get into a situation where you, you know, aren't available in a crisis. And that's the, you know, it's the thing to tell your students is that, there is, there's going to be a crisis. There's different levels of crises. Not, not every crisis is a fatal one, but there's going to be things that hit you and you just don't know what they are. And so the name of the game is to just have your wits about you when those moments happen. Yeah. And have good partners, right?

Have good people to talk to. I like to circle back to, because, because you dropped it very quickly and we moved on, which was the feed the ducks while they're quacking. And the analogy you said earlier was like, you know, somebody's quacking, you sell it off. But the way that I kind of interpreted it when in the book and everything was like more of an investment opportunity where you're investing in something versus selling something. So I'd like to just spend a moment to expand on that. I don't know if Lane, you're familiar with that expression.

That's a Kynism. Yeah. The, um, it, I, the chapter in the book has to do with energy transfer and we did a series of capital markets transactions that there was a, we were able to raise money in that company, um, in a, in a really favorable structure because the market was really receptive to these, the general partner of a partnership to be specific. And the ability to get those things public at those moments, um, was really, uh, valuable. So the investor community, you know, we've had moments in time where the receptivity, the IPO window, the IPO market is a classic example. There are moments in time where the IPO window is wide open and there are times where it's completely closed. And if you have a company and you believe that being publicly traded is in the best interest of your company, well, then you have to get through the IPO window. When it's open. You may want to go in a year or two when it's closed, but if there are no investors that want to buy public offerings, you're out of luck. So if that, if that is appropriate for your business plan as a way to finance your business plan, then you have to go when the market's open. You don't have the luxury. There are times in every cycle where asset values get ahead of reality in my mind.. And if you need a liquidity event, those are the, those are the ducks that you feed. Uh, there's an old expression that liquidity is a phantom. Uh, it's not there when you need it. Um, you know, if you go to a financial crisis and you try to pull on your credit lines, the bank says, sorry, right? When times are good, you don't need your credit line. So that liquidity that you thought you had, you didn't really have it. So, you know, this, the markets, markets are cyclical. Business is cyclical. Again, it circles back to that same concept of intellectual honesty and being a little bit humble to know in the oil and gas business, all I know when prices are high, they're going to go lower. That's all I know. You know, I don't know when, but everybody's going to say they're going to go to the moon. That's the time to sell because they're going to go lower. When it's on the COVID of The Economist that says, you know, drowning in oil because oil's going from $10 to $5, that's the time to go long. And when it says, you know, forever oil prices are high, I'm like, you know what? High prices cure high prices and low prices cure low prices. And that's just supply and demand. Back to those two curves. So I just, in a cyclical business, I came to appreciate that there are moments where liquidity is more open than others.

And if you need liquidity, you better take it. So another way, just to simplify it, is like feeding the ducks while they're quacking is because you know they're hungry now, but they may not be hungry in a minute or two.

Correct.

So if you need that money, that liquidity, or if you're just trying to make the upside, or else you may.

Have to withstand another cycle. Correct. If at all. Correct. And in the energy business, your oil and gas wells are depleting. So if you have to wait 3 to 5 years for another exit cycle, what are your assets doing during that time period? So it's a different, you know, the different goes. The investment business can be very humbling. And so you have to, you have to always be mindful of what your exit strategy is and don't be afraid.

To Don't be afraid to hit it. Yeah, it's funny because like I made a note of buy the rumors, sell the news, but that's not, it's adjacent-esque, but it's not necessarily the same thing. And then as you're explaining it more and more, it's like, oh yeah, it's because, you know, buy the rumors, sell the news. Yeah, it's because the psychology of people.

Trying to get into it. If you're a day trader, that's day trading.

But I was just saying it's similar.

But completely different concepts. And we were managing other people's money. And we had some of the largest university endowments, private foundations, pension funds, charitable foundations, I mean, as investors. So, my job, I mean, I had a fiduciary obligation. I felt that every day. And so, we're not hoarding and there's no prize. We had to get that money out and then start to get it back. And that was our job. And so, it's a little bit different than if I was a private family and just managing. And you might say, you know, they're private families that own businesses and own them forever. And when times are bad, they buy their competitors and they hunker down. And when times are good, they enjoy the cash flow and pay out big bonuses and have a big Christmas party. I don't know what they do. But they'll have a, you know, the family businesses, then they just, they just sort of compound, you know, and that's, that's for that capital. That's exactly logical. You know, so it's, that's, that's the Warren Buffett model. But, you know, if you're managing third-party capital, you need to, you need to.

Put points on the board. It circles all back to the, the, you know, get base hits versus the home runs. Because like you had mentioned, one of your favorite books is Moneyball. And, you know, Moneyball is all about getting the sure thing versus the risky guy that might get a home run. It's like, get the guy that's going.

To get on base. Well, Moneyball is actually an investment book more than a baseball book because it's talking about what are the real drivers, right? And back in the day, it was getting on base. Don't worry about whether it's a walk or whatever. Now, you know, the statistics have gone nuts in baseball, but it's about what are the real drivers. And if somebody's willing to pay you more for this certain production package, sell it. And if you can, if you can sell some— somebody who hits home runs because people want home runs, but the guy strikes out all the time, and, you know, he, he can hit home runs in 10-0 ballgames when it doesn't matter, okay, but somebody wants to pay for home runs and they're willing to give you 4 prospects that are middle of the rotation pitchers that you need, that's a great trade. And it's because somebody values something more than you do and you're able to swap into a better package. And that's the essence of Moneyball is.

That everything has a price. Yeah, I saw it as an investment book as well. And of course, Michael Lewis wrote Liar's Poker and started off as a trader. So he brought that mentality to it.

John Henry guy. Equities in Dallas, remember? And that was supposed to be like the curse. Yeah.

You know, here we are. John Henry, who got into professional sports ownership with the Red Sox, I believe, was a commodity trader, very analytical, and also brought that mindset to, to, to that sport.

Yeah.

That, that, that changed how they, how they looked at talent. I, I think it was the American humorist Will Rogers who said bull markets make geniuses and the opposite is also true. Yeah. Having been a wealth manager and advisor, it was amazing how smart I was when things were going well and how stupid I was when they weren't. I found it to be a remarkably humbling path to walk. And just when I got arrogant enough to think I figured it all out, there was a remarkably humbling experience, whether that was '87 when I was a young stockbroker at Dean Witter and I could not get an execution on a market order for IBM. During the flash crash, whether it was '08 or '09, when all the things we put in portfolios to diversify looked exactly like the things we were trying.

To diversify away from. In a crisis, the only thing that.

Goes up is correlation. I love that. I haven't actually heard it expressed that.

Way, but that's exactly right. Correlation goes up. And it's because liquidity. It's because people say, you know, this is supposed to be defensive. I'm supposed to hold gold to be defensive. But you know what? I need cash. Sell my gold. And gold went down, too. The only thing that went up were the credit default swaps. But that's the lesson, is that I think the most dangerous words in economics.

Are "all other things being equal.".

Right, because they never are. They never are. And in a crisis, they surely aren't. And so all other things being equal, you're right. If this asset group goes up, this one should go down, and they should hedge each other. Yeah, right. And but you know what, when liquidity becomes paramount and stupidity becomes paramount, right?

So guess what, you own a, uh, convertible bond arbitrage, um, strategy, and it's working beautifully and it's low volatility, right? And then in '08-'09, um, those securities become illiquid, uh, and investors are asking demanding their money back. And now you've got to unwind the trade with an illiquid security. And suddenly, you're taking losses there because— and goes back to your comment about terrible decision-making. Investors panicking and coming out of investments at a time when, frankly, maybe they ought to let the dust settle a little bit, but they ought to be deploying capital.

But if they don't have the liquidity, because they're all in the market— and anyway, there's a whole You know, there's dissertations written about behaviors at those moments. And we think that that'll be the last crisis we ever see. And Long-Term Capital Management almost broke the system. And, you know, the financial crisis showed up, and it made— in '08-'09, it.

Made Long-Term Capital Management look like child's play. And it revealed a lot of bad actors. Bernie Madoff, it was that rush to liquidity because he claimed he had liquidity because of the way he managed money, which was a fraud, of course. So he became the place where people wanted to withdraw the capital and he.

Couldn'T sustain the draw. So it's important to stay humble. It's important to understand when times are good, that's the time to start thinking about, okay, when the market turns, what are we going to do? And are we well insulated? Right. And do you take some chips off the table? You know, I mean, they're just— they— a friend described the investment business. Imagine owning a baseball team and there's no beginning of the season, there's no end of the season. And there's no playoffs. Your goal is to win 2 out of every 3 games. Just go win the series. And then there's another one tomorrow. If I told you in the investment business that you were in it for your career and 2 out of every 3 deals you did worked, would you say, I'd take that right now and go to the house? Yeah, right. Absolutely. But that third one that doesn't work is painful, right?

You don't want to have all your.

Money and you don't have all your money in it.

And, and so it's just, it's just.

Keep sizing your bets. It's sizing your bets. It's pacing your bets, you know, it's understanding your risk tolerances. Those are the investment pitfalls that people, they're all in the market and they don't have any rainy day money. And when the market goes down, they're stuck. You know, that kind of thing. But if you treat it like an evergreen activity and not like a, a lottery ticket, right? I think you can get your head in the right frame to make good decisions.

Is it that perspective that allows you or one to maintain that optimism? Because I know optimism is a big thing for you, obviously, with the ups and downs of cyclical nature of energy or even the 2 out of 3 deals. Yeah, that third deal being painful. Like, is it the balancing that perspective?

Is that what makes that optimism Stay whole? Well, it's what makes optimism important because you know you're going to have failures. So, you know, you can't let your failures be fatal. You know, demanding doesn't have to be demeaning with your people. You know, something doesn't work, we're going to learn from it. We're going to try to be better the next time. But, you know, nobody cheated, nobody lied, nobody stole. It just didn't work. It's okay. That happens. Right. Right. But back to the good people and being aligned and all that. And those are the things that are so important. And that's back to, are you in business with people that you would trust with your kids? You know, if you're in that mentality, then if there's a mistake, you're all in together. You're in that foxhole together. And, you know, my partners, David Alden and John Foster, I mean, we went through a couple and we learned about each other. We were our own first calls to each other, you know, and nobody said, well, I'm out of here. That's the most important thing. Dave and I were partners for almost 30 years. We never had a stitch of paper between us. Took us all of 30 seconds to do the year-end compensation. You take 60, I'll take 40. No, no, no, you take 60, I'll take 40. No, you got to give— let's split it. I mean, whatever. I mean, it was nothing. It was it was a fun conversation to have. To me, I was so fortunate to have been in that situation. I'm not naive to know it doesn't exist everywhere, but that's the gold standard is to get in that situation where you can handle your setbacks and know that it's going to be okay. That's a little experience talking. You talk to people when I was younger, they might like, like, where's, who's this guy talking? You know, he was sweating bullets. I'm like, yeah, there were times we.

Were sweating bullets and we were going, OMG, part of the journey. Yep. You were born here in Texas and you left and you had a 3-year— you were going to come back and it's 30 years later. Texas is a very dynamic, growing state and certainly seems to be a very prosperous state at this point. I wonder how you feel about the future of North Texas, how you feel about the Texas Stock Exchange, how you.

Feel about just the business community here. I am super bullish on Texas and on Dallas in this region. This region is very diversified. It is a magnet for people who are enterprising, who are thoughtful risk-takers, who are careful but energetic and creative and all those things that kind of push those boundaries back to the, to the discomfort level to make things happen. And, and that is intoxicating and people want to be around it. So young graduates want to be in that market. Transplants want to be in that market from other parts of the country where they where they might feel the business conditions aren't as conducive. And so we have a lot of things going in our favor right now. But we have to— we can't be naive. These things turn around and you have to nurture them. There are serious issues in what our workforce training looks like and what our education, underlying education fundamentals look like that don't portend well for the year 2050. Some of the social issues here that are being handled out of Austin are not conducive to an inclusive environment, and that can turn around. And if we're chasing young people away because of certain social issues, that's not good, and it shouldn't be in the purview. But things like that, you know, I would say the cyclical nature of my understanding, I would say now is the time to play defensive ball and say what could kill it. And there are some things that are very obvious that could absolutely kill it. And I just mentioned a few. And if we just presume that those are no big deal, we're going to wake up in a few years and go, OMG, how come we've lost a whole segment of young people who don't want to be here? Or old people, I don't know. Right? From a policy standpoint, things like water and electricity, You know, infrastructure things, I think those have a way of getting worked out because ultimately necessity drives it. But it'll be costly and too late because our politicians will generally be asleep at the switch because they're focused on some of these tangential issues. High-speed rail should absolutely happen between Dallas and Houston and Austin. You know, it's not going to happen probably, or it's going to— it's happening. It should have happened 10 years ago. And instead it's futzing around things like that. That are too obvious. We need to get out of our own way. But now's the time. Don't be complacent. Don't be complacent. Yeah. Everything is cyclical. And you're going to— people are going to wake up and go, oh, how'd this happen? And I'll tell you, you know, once upon a time, the Rust Belt wasn't the Rust Belt, right? It was where everything was happening, right?

It got complacent. Well, I know Elaine and I both are very appreciative of you being here. I do want to end on your book, the, the, the tagline Fastest Taurus. I mean, I actually had a big old red arrow of the fastest Taurus. Everything you, we spoke about last hour kind of all feeds into that concept, but I'd like to hear from your.

Own words, what does that mean? Slow and steady wins the race. 2 out of 3 is a great, a great average. Learn from the one that didn't work and don't be afraid to, to move outta your comfort zone. And you might take 2 steps forward and 1 step back, but that's okay. Rather than give the money back once upon a time because the thesis was wrong, we pivoted and said, how do we make lemonade outta lemons and then keep it going? And some people, you know, and then we did it through cycles. And there were people who left the energy industry in '98, '99 'cause, and they went to chase their internet dream and they were late to the first internet party. And then after that internet crash, they came back to the energy business and missed the turn because they weren't in it. So I just say, you know, focus, stay in there and keep learning and keep working hard at it. And more often than not, things will have a way of working out. I encourage you to read the book. It was cathartic and fun to write, and it has been very satisfying to me because while I wrote it more for my peer group, what I have found is that it has been given as a gift to people's young adult children. And that's what's resonated out of the book was, my, the story around getting started and pivoting a few times and ending up in a place that you would've never thought I would've been in looking at my past. How would I have ended up in an energy private equity business and then ended up running a presidential foundation? What the heck? And so people have come to me and said, I gave your book to my son or daughter and they really liked it. And I get letters from people. And so that's very encouraging. And Anyway, so, uh, enjoy it. Well, thank you so much for being here. Thank you, Ken. Thank you for having me.