Two and Twenty cover

Two and Twenty

How the Masters of Private Equity Always Win

bySachin Khajuria

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Book Edition Details

ISBN:0593239598
Publisher:Crown Currency
Publication Date:2022
Reading Time:12 minutes
Language:English
ASIN:0593239598

Summary

Peek behind the curtain of the secretive, high-stakes world of private equity with Two and Twenty (2022) by Sachin Khajuria, a former Apollo partner. This insider's account reveals what it takes to thrive among elite dealmakers, illuminating the culture, mindset, and strategies that drive market-beating returns in this powerful global economic engine.

Introduction

Picture a room where billions of dollars change hands with a single nod, where the fate of companies employing hundreds of thousands rests in the judgment of a few brilliant minds. This is not the setting of a thriller novel, but the everyday reality of private equity—an industry that has quietly grown to manage over $12 trillion worldwide while remaining largely invisible to the public eye. Behind these astronomical figures are real people making consequential decisions that ripple through our economy, affecting everything from the products we buy to the security of our retirement funds. At the heart of this financial ecosystem lies a simple yet powerful formula: "Two and Twenty"—two percent in annual management fees and twenty percent of the profits. This compensation structure has created some of the world's wealthiest individuals while simultaneously delivering the returns that pension funds desperately need to pay teachers, firefighters, and healthcare workers in their retirement years. The industry's masters operate with surgical precision, wielding unprecedented influence over businesses spanning from healthcare to technology, from retail chains to infrastructure projects that power our daily lives. 本书takes readers behind the velvet rope into this exclusive world, revealing the mindset, strategies, and human dynamics that drive these financial titans. Through vivid storytelling and penetrating analysis, we'll explore how a relatively small group of professionals has come to wield such enormous influence over our economy, and why understanding their methods has become essential for anyone who wants to grasp the forces shaping our financial future.

The Best Game in Town: Private Equity's Rise to Power

In the oak-paneled boardroom of a prominent Manhattan skyscraper, eleven partners gather around an elegant French walnut table as financial markets crash around them. The year is 2008, and while the world economy teeters on the brink of collapse, these investment professionals are methodically plotting their next move. Their target is TV Corp, Germany's largest broadcaster—a company they once owned and understand intimately. As ordinary investors flee in panic, these masters of private equity see opportunity in the chaos. The Founder, seated in his distinctive titanium chair, speaks with quiet authority: "I've seen this movie before. Europe is a few short months behind the US. They will get hit hard, and they won't know what hit them until it's too late. We finalize our preparations to buy soon, because the price of these securities will be in free fall." His partners listen intently, knowing that his track record of losing money on deals just twice in thirty years commands absolute respect. While others abandon the market, they prepare to acquire TV Corp's stock and debt at severely distressed prices—betting that what appears to be financial Armageddon is actually a once-in-a-generation buying opportunity. Their advantage lies not in superior market timing, but in superior preparation. For years since selling TV Corp, the firm has continued monitoring the company, collecting quarterly data from related sectors, maintaining relationships with industry executives, and building comprehensive financial models. When crisis strikes, they don't need months of due diligence—they're ready to act immediately. Within twelve months, their calculated gamble pays off spectacularly as government stimulus measures restore market confidence. The securities triple in value, delivering a 200% return to their investors in just over a year. This episode illustrates why private equity has become "the best game in town" for institutional investors. Unlike passive funds that simply track market indices, private equity firms actively create value through deep industry knowledge, strategic thinking, and operational improvements. They provide pension funds with the consistent, high returns needed to meet obligations to millions of retirees, justifying their premium fees through superior performance. The industry's explosive growth—doubling in size during the 2010s alone—reflects not speculation, but a proven ability to generate wealth in markets both calm and turbulent.

Behind the Curtain: Culture, Competition, and Complex Deals

David's first day at the Firm begins with a walk through Manhattan's financial district, past a lobby lined with million-dollar titanium staircases and antique rifles that hint at the raw firepower of the organization he's joining. Fresh from Goldman Sachs with an MBA from Wharton, he represents the top one percent of applicants who gain entry to this elite world. His starting compensation of $150,000 seems modest until he learns the promise whispered to every new hire: partners routinely earn hundreds of millions of dollars, with the most successful reaching billionaire status in their forties. Behind the polished corporate facade lies a fascinating tension. The Firm's website presents a picture of diverse, socially responsible corporate citizenship—thousands of employees across continents, sophisticated committees and governance structures, awards for workplace excellence. Yet David quickly senses that real power remains concentrated in remarkably few hands. Twenty partners make decisions affecting hundreds of billions in assets, and even among these elites, ultimate authority rests with perhaps five individuals whose judgment determines the fate of massive enterprises worldwide. David's first assignment, code-named "Endgame," reveals the audacious scope of the Firm's ambitions. He's tasked with developing strategies to double assets under management to nearly a trillion dollars within a decade. The plan involves two revolutionary approaches: creating "permanent capital" vehicles that never return money to investors, ensuring perpetual management fees, and pioneering retail investment products that would allow ordinary Americans to invest directly in private equity through their 401(k) plans. While David processes spreadsheets projecting tens of billions in new revenue streams, he wrestles with questions about whether his parents would understand the complexity of products he's helping design for their generation. This concentration of power and wealth in so few hands creates profound responsibilities that extend far beyond generating returns. The decisions made in these boardrooms affect hundreds of thousands of employees, entire communities, and increasingly large segments of the global economy. As private equity's reach expands into healthcare, education, infrastructure, and other essential services, the judgment of these "key employees" becomes ever more critical to our collective economic well-being—highlighting why understanding their motivations and methods has become essential for anyone whose financial future depends on their success.

Running into Burning Buildings: Innovation and Edge Creation

While most investors flee complexity and uncertainty, private equity professionals run toward it with the focused intensity of firefighters charging into burning buildings. This attraction to chaos isn't recklessness—it's the calculated recognition that within apparent disasters often lie the greatest opportunities for those prepared to act when others cannot or will not. The 2008 financial crisis provides a perfect case study of this contrarian mindset in action, particularly in the insurance sector that had been devastated by AIG's collapse. As panic spreads through insurance markets, with policyholders and investors questioning the solvency of entire industry players, a private equity firm's investment committee debates a billion-dollar gamble on General Insurance Group. The target is everything conventional wisdom says to avoid: opaque financial reporting, sprawling operations across six entities in multiple jurisdictions, and exposure to potentially catastrophic claims that could threaten the company's survival. While strategic acquirers in the insurance industry pass on the opportunity and competitors hesitate, the private equity team sees through the smokescreen of complexity to identify a fundamentally sound business trading at distressed valuations. Their edge comes from exhaustive preparation that borders on obsession. The team spends millions on actuarial analysis, hiring twelve specialists to evaluate every single underwriting position on the company's books. They engage insurance attorneys to cross-check that contracts match financial models. They discover that beneath the convoluted structure lies a $300 million surplus of hidden capital and identify opportunities to streamline six underwriting entities into two more efficient operations. Most importantly, they recognize that the company's $3 billion "float"—premiums held against possible claims—can be invested far more aggressively to generate additional yield. The deal succeeds spectacularly not because the team took wild risks, but because they did more homework than anyone else was willing to do. Their willingness to embrace complexity where others saw only confusion allowed them to transform an apparently impossible situation into a highly profitable investment. This pattern repeats across private equity: the most successful practitioners don't seek easy victories, but rather hunt for the difficult problems that reward those capable of solving them. In a world increasingly drawn to simplicity and quick fixes, this appetite for complexity becomes a sustainable competitive advantage that generates superior returns for decades.

Stacking the Deck: The Age of Big Finance

In the gleaming boardroom where billions of dollars flow with each investment committee decision, the Founder sets an uncompromising standard: "I have no interest in a fair fight." This isn't about cheating—it's about ensuring that by the time an investment reaches final approval, every variable has been analyzed, every risk mitigated, and every advantage maximized to create odds heavily favored toward success. The Firm's ninety percent win rate over decades reflects not luck, but a systematic approach to stacking every deck in their favor before placing their bets. Project Rubik exemplifies this methodology in action. When a scandal-plagued Asian conglomerate faces financial collapse, most investors see only chaos and reputational risk. The Firm's team sees an opportunity to acquire valuable energy assets while simultaneously providing a credit solution that rescues both the distressed seller and their lending banks. Their proposal is elegantly comprehensive: purchase the energy division for $2 billion while extending a $2.5 billion credit facility to refinance the conglomerate's troubled debt. The banks get nearly full recovery instead of years of litigation, the family retains breathing room and a small advisory stake, and the Firm positions itself to profit from multiple angles. The genius lies in the details that transform good deals into great ones. The energy assets can eventually be dissected and sold to different buyer types—upstream fields to exploration investors, pipelines to infrastructure funds, refineries to energy specialists. Some pieces might even be sold to other funds within the same firm's family of investment vehicles. With strict debt covenants providing downside protection and multiple value-creation pathways mapped out, the investment becomes nearly impossible to lose money on while offering substantial upside potential. This approach reflects private equity's evolution from alternative investment to mainstream financial powerhouse. The largest firms now manage hundreds of billions across multiple strategies, combining the analytical rigor of investment banking with the operational expertise of management consulting and the patience of long-term value investors. They've built what Warren Buffett might recognize as economic "moats"—sustainable competitive advantages that become stronger over time. In the age of Big Finance, these Mainstream Active Asset Managers have become too important to fail and too successful to ignore, wielding influence that extends far beyond their immediate investors to shape the broader economy in ways we're only beginning to understand.

Summary

The world of private equity reveals a fundamental truth about modern capitalism: success belongs not to those who avoid complexity, but to those who master it. Through the stories of billion-dollar deals crafted in Manhattan boardrooms and life-changing investments that ripple across global markets, we see how a relatively small group of professionals has learned to thrive in chaos, create value from uncertainty, and generate the consistent returns upon which millions of retirees depend. Their "Two and Twenty" formula has produced extraordinary wealth not through financial engineering alone, but through the patient application of intelligence, preparation, and operational expertise to transform businesses and entire industries. These masters of private equity succeed because they've developed what might be called an "ownership mentality"—a deep personal stake in outcomes that drives them to work harder, think longer-term, and take responsibility for results in ways that traditional money managers simply cannot match. Whether nursing a struggling retailer back to health, pioneering new investment categories like infrastructure, or navigating the complexities of distressed debt during financial crises, they approach each challenge with the intensity of entrepreneurs whose own fortunes rise and fall with their decisions. This alignment of interests between investment professionals and their investors creates a powerful engine for wealth creation that has proven remarkably durable across market cycles. Perhaps most importantly, this industry's growth from a niche alternative investment to a $12 trillion mainstream force demonstrates the enduring value of human judgment in an increasingly automated world. While algorithms can execute trades in milliseconds, the decisions that truly create value—which management team to back, how to restructure operations, when to buy and when to sell—still require the kind of wisdom, experience, and intuition that can only come from dedicated professionals who've learned to see opportunity where others see only risk. For investors seeking superior returns and for societies requiring efficient capital allocation, these modern financial alchemists have proven themselves indispensable partners in building a more prosperous future.

Book Cover
Two and Twenty

By Sachin Khajuria

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