#330 - Billy Quinn - Founder @ Pearl Energy - Navigating the High-Stakes World of Energy Private Equity

Chris Powers: Let's start with your story about private equity in oil and gas. You got into it at a time when it was beginning in the form we know today. And so, take it wherever you'd like to start, but how'd you get here?

Billy Quinn: Yeah, I mean, I lucked into it. It wasn't something that I set out to do.

I was a business major in college and grew up in the Dallas area. I went into investment banking post-college because I wanted to do that. I tried to get four years of work experience in 2 years on Wall Street and learn that way, and it was a great experience.

I did that, and then before going back to business school, I wanted to transition to the investing side. And that's what I realized pretty early in my life. That's where my passion was. I was lucky and was lucky enough to get a job in the rainwater office at a time when natural gas partners had just started.

It started a few years before I arrived, and Richard was still reasonably active doing deals. And I wanted a one to two-year stint before returning to business school. And so I went over, and in that year and a half, I was there before business school. It was when, you know, NGP were at the time we were fund one was 100 million funds, and it was mainly monetized, some work to do there.

Then, funds two and three were brand new but were 30 and 38 million, tiny funds. They're not even; they wouldn't even call funds by today's standards in our business and the private equity world in general. And we did a lot with Richard. We would overlap. Exciting things happened back then because you had to be nimble; it was a different business.

But that year was the year where. We dealt with Mesa to do the extensive convertible preferred and restructuring. The deal was a 265 million dollar commitment, of which we would do at least 51 per cent of 133 million and manage a 30 and 38-million dollar fund.

We didn't have the money for that. And so it was, with Rainwater Inc., with a Richard-led deal. That is doing some things for NGP, halftime there, halftime Rainwater. The Mesa deal, which took place between Richard and Ken Hirsch, Bruce Selkirk and Randy Chappell, was all our lives for the better part of six, seven, and eight months.

Chris Powers: Okay. Go deeper. So, what was the Mesa deal? How did this thing work? 

Billy Quinn: So the Mesa was T. Boone Pickens company, and T. Boone had leveraged the company. And it put the punk company in the wrong spot. It had been for a while. And like many people in Texas and the Dallas area, if they had companies that were in trouble, a lot of people called Richard because he was smart, had money, could put deals together, and had a reputation for saving businesses and coming in.

To provide critical equity capital when companies needed it, Boone's company is an oil and gas company. Richard would look over and say guys, I started you; you're in my office. You guys have to lead this. And so and so we did; we made offers to Mesa to their board; they were a public company at the time. And our first offer with stock was 678. I am trying to remember precisely. We offered up a convertible preferred at 2, and they turned it down. That's not the best pass. They went out to try to sell some assets in the middle of the asset sale. I think they came back. The stock was at 4. We said, no, it's still convertible for the two, and then when they realized the asset sales were going to fail or generate insufficient value to cover the debt, they needed to.

They needed to come up with what they called, and the stock was approaching, so we said we'll still do the convertible bird at 2. And that was a lot of that was a, you know, Richard Boone relationship where I wouldn't say they were close. They knew each other but by reputation as well, and we at NGP knew the assets, the correct value, and where this could be a good transaction.

And that was really, that six to nine-month period on that transaction was where I cut my teeth. On the oil and gas business, which business went on in doing that deal, we closed that it was a convertible preferred where there was, we refinanced 800 000 000 dollars of public debt on the company with the 265 000 000 dollar equity injection in the form of a convertible preferred.

We brought in John Bromley, senior, to run the company, and we shook up the board and changed up the board, so it was now a completely different look. Then, within a year and a half of closing that deal, Mesa submerged with Parker and Parsley. To become what is now soon to be a pioneer, so, you know, we are always saying it's true.

We like to build, and we do this today. We want to make great companies with real staying power. And it starts with, you know, incredible management teams, which John Bromley was one and then. Scott Sheffield came in post-merger, both phenomenal CEOs and with significant assets. And that, you know, leads you to create something unique. And that's long-lasting and generates accurate equity rates of return. 

Chris Powers: Okay. And you might've just answered, but if you look at that experience and go through that six to nine months, these lessons I learned, you said, this is where I cut my teeth. Like, what else about that period set you up?

Billy Quinn: Well, it was a mix of things, right? Patience, right? Many people have capital and stretch for deals, and they want to get deals done where if you were a big buyout fund nowadays, you're looking at a deal like that. It might have been easy to stretch to 4 or 4 to 55 dollars to get a deal done where we were.

We knew the value and were patient and willing to let a deal go away, which we always are. We are today at Pearl, and if it's not the right deal at the right price, there'll be another one around the corner. So that big picture was critical, and deals take time, right?

Deals take time to happen. You often have to work deals over a long period of time, and that hasn't changed, right? That deal was 96. So it was; it was a long time ago. And contracts are very much the same. It is the same nowadays and in the oil and gas business. Right for me, I was an investment guy, an investment banker trained in finance but not in oil and gas.

So there was a lot I had to come up to speed on there. That was a learning experience. The 1st thing is to trust reserve reports. So many public companies have a reserve report, but we always say that they're generally not worth the paper they're printed on. It depends on who the engineer does it, their look, and how much they understand the assets they're writing that on.

And we saw that first-hand and, you know, in the Mesa deal as we got in there and tried to understand the assets even better and, you know, what made sense and what didn't. 

Chris Powers: Okay, explain that a little further. It's because it's like when you're getting a house inspected. If you're the seller, the inspection looks one way.

If you're the buyer, the inspection looks a whole other way. In your business, if you own the oil, your reserves are enormous, and there's a ton, and if you're buying, it can look like, yeah, we think you have less; how do you find equilibrium there? 

Billy Quinn: Yeah. That's always a great question.

And sometimes, it works the other way. You know your assets well, correct? So when selling your house, you know which toilets don't flush. And so, where all the skeletons are, are buried. The buyer doesn't, so they're trying to come in and unravel that.

It's the same in the oil and gas business. But when a company knows that, they don't necessarily have to show all that data to a third party who puts the reserve report together. And so they come in much like a buyer with incomplete information, though they try to do a great job to get as complete information as possible.

They don't always do it because they don't own it. They don't live with it every day. And so they put together a report with a stamp from an independent third party. As I said, they still know the asset and the seller. So that report can look very different, and a buyer coming in sees that and says, okay, I've got to do my homework.

But again, even a buyer, a lot of times, only some of the time, but a lot of times, a buyer's not going to understand the assets as well as the seller. You own something, whether it's your car, house, or an oil and gas field. When you own it, you deal with it every day.

You understand it better than somebody just showing up for the first time to look at it. 

Chris Powers: Okay. So, if you say the reserve reports aren't worth the paper they're written on, how do you overcome that? It's a buyer. 

Billy Quinn: Well, you make sure it's like for us as we invest. We make sure we're in business with outstanding management teams that have the technical talent where they've worked in those areas and know those fields.

As we always say, it is a recipe for disaster. If you're in, we've. I've invested in Canada for a long time in the oil and gas business and had great success. But if you said to me, Hey, I've got this great team, they're based out of Austin, Texas, but they're going to look at deals in Alberta, I'd shake my head and say, there's next to zero chance we will do that deal.

It's like, well, why not? Well, I don't care how good they are. What is the probability of them understanding the assets in Alberta based down here, not working that basin relative to those within a 10-block radius in Calgary and who have worked in these fields for their entire career?

They're going to need help understanding them to that extent. So what we do to mitigate the reason is we make sure that our management teams have. History, experience, knowledge, and technical skill in the areas that they're looking for. And that's where we find some competitive advantages.

You have a competitive advantage if a team operates a field following something up for sale. You know what it costs you to run this field. And if you're buying this field from Exxon, their cost structure will be higher. They need to be innovative. It's because they have a different bureaucracy and a separate process, and as a buyer next door, being a quick, agile company, you may be able to come in and cut costs quickly. So, you have to have that level of understanding. 

Chris Powers: Is there an easy way to prove that you have that? Is it just, hey, look at my resume, this is where I've worked, and these are the jobs I've held, that you, on your end, if you're determining am I going to give you money or not, you can be like, yep, they have it. 

Billy Quinn: Yeah, well, there's two levels to that, right? You will first examine the track record if you're an LP looking to invest in our fund. What have you done? Have you been able to generate returns? And if the answer is yes, check that box. That's the first step, the pass. 

The next step is, well, how do you do it? And is it repeatable? Yeah. And so, those are the keys to what you're getting at because our business is backing excellent management teams. Yep. So, how do you find management teams, and how do you assess them? And, you know, that's the softer science of what we do.

But, for us, I've been doing it a long time. I've been doing it for 30 years and met with many management teams that can usually sniff out. It makes sense. These dots connect. This team is excellent. We're going to have an interest in backing in. They have a capitalistic mindset. In addition to being technical, they think like business owners and then reference checking.

And so you connect the dots for us, and it's, do we have good deal flow? Do management teams want to do business with us? Yes, and can we assess that talent? And the answer is that most of the time, yes, we sometimes make mistakes. Occasionally, we back teams, and it doesn't turn out to be what we thought it was; it could be one or two of several reasons, but it only sometimes works. You see, we do make mistakes.

Chris Powers: Why doesn't it usually work out that the geology differs from what you thought it was? 

Billy Quinn: No, so with a management team, it could be captured, right? So a lot of times we'll, we'll back teams. Most of the time, we'll support teams that don't have assets but have a history of experience in an area.

And they don't, but they don't have assets. Well, it's a skill to go out and find assets to buy where you have special knowledge and can acquire them and make money with them. So, capture can be challenging. It's a competitive business, even, you know, even with where the world sits today in the oil and gas business, where it's much less competitive today than it was ten years ago. It's still competitive. It's always challenging to make money. So the first thing is the management team is suitable. We make sure that they can capture. Once you catch, you still have to execute. And so that could be where we miss it, right? We back a team, and we think everything we see, all the reference checking we do, we can execute a certain way, or they will look to make business decisions a certain way.

And it doesn't turn out that way. And whether they underestimate drilling costs. They overestimate reserves in the ground. Underestimate how quickly wells decline. There is a whole laundry list of things that can go wrong in our business. It's a tricky business, and there are a lot of things that can go wrong.

Chris Powers: On captures, that's fascinating. Okay, so I come in; I've been in this area forever. I know it like the back of my hand, but I've never run my own company. And for many people, no matter what industry you are in and have the confidence of the big company you work for, it is easy to get deals done in that region.

But once you're off with a new company name and nobody knows who you are, that goes off; I don't know if it's a loaded question. If somebody's only maybe worked for a big company, even though they know the area the best, how can you kind of vet out, like, do they're, are they going to have the capture potential or not?

Billy Quinn: So that's a great question. If they've only worked for a big company, that would be a red flag, at least a bright yellow flag. Because that means, by definition, they generally haven't been responsible for having to capture something. They may be a great petroleum engineer, geologist, or technical Landman, but they still need to do the nuance of going out and finding deals.

So, in that particular case, let's say it's a petroleum engineer. Well, who's that? You know, who's that person's partner? Because that's one thing. When we look to back teams, never back one-person shows, right? It's just different from what we do. We want a good, balanced team with at least two strong, balanced leaders at the top.

To play off each other, different skill sets and top of mind, solid technical skills are the two biggest things we look for. And a complimentary person who is deal savvy and can lower the risk of failure of capture. 

Chris Powers: So you need co-founders. 

Billy Quinn: Yeah, you need co-founders.

Chris Powers: How often do you have somebody come to you? That's great, and you're like, I can help you find a co-founder or see a co-founder and come back to me.

Billy Quinn: It was the ladder all the time; we'll meet somebody who will say you have the pedigree, all the things we look for in somebody we would back.

Who are you doing it with? Yeah. That happens all the time. We just went back to the team just like that incredible team, and they were coming to us early and just kicking ideas around so they weren't out looking alone and asking for advice. What do you think? What should I look for? And so we give people coaching all the time like that.

Part of our job is mentoring and coaching people who still need to be ready. But it might be one day. And so that team went out. People had known each other a while and decided, okay, let's partner up. And now they're two people with great complementary skill sets. And, you know, we're excited to go. It's starting from scratch. We did it with one of your friends. 

Chris Powers: Let's talk about it so that they come. Well, let's just kind of go through there for a second. We're already there. So they come in, Will and James. 

Billy Quinn: Who are now Permian Resources?

Chris Powers: Correct. What's the story like from your perspective? It's an incredible story and how these can play out in the best of outcomes.

Billy Quinn: Yeah, this is a great starting point. It's a great example. It's an easy example. Because it's been so successful, it is an excellent example of different points along the process of what we look for.

So, I had known Will for a few years. He had been put in touch with me by a friend of his, a fraternity brother, as he was looking to leave Pioneer and go to NCAP. And his friend said you have to talk to Billy. He can give you sound advice on that. And this is just after I left NGP. So this was in late 2013 or early 2014, so I met Will that way. It was more in a mentor role, and I encouraged him.

I said you should take the unattended job at that great firm. Great people. You're going to learn a lot of different skill sets, and you're ready for that. So, I got to know Will, and then we stayed in touch over a year and a half two years. And you just started developing a relationship, and he calls one day. I'm in my office, and I put him on the speaker. Are you alone?

Chris Powers: And you had started Pearl at this point? 

Billy Quinn: Started Pearl; we had just closed or right on the cusp of completing our first fund. So it was called September and October of 2015, and Will calls. One of the partners in my office at Pearl is Stuart Coleman. And Stuart and Will were pledge brothers together.

And so when Will called on the speaker, Stuart was out, I said, come in, come on in here. And Will's talking, he said, who's in the room with you? And I said, just Stuart, just me and Stuart. And he says, okay, I want to talk to you guys because I think I have a crazy idea. Okay, what is it? He said, well, James called me.

So James grew up with Will on the same street. They were all in the same fraternity. So between Stuart and Will and James, they'd all known each other for ten-plus years for a long time, Will and James their entire lives. So you have that level of comfort when you know people, you know how they think, are they intelligent?

Do they think, you know, do they think three, four steps ahead? You know, how do they feel about making money? You get comfort in, you know, in that history. And so, we said, well, yeah, let's do, and he said, okay, I'm gonna get James. We're going to we're let's meet with you guys. And so we go to the Ritz bar right across the street from our office in Dallas, and we sketch out on a napkin what a term sheet looks like, and it starts with we talk about that. We know their backgrounds.

I didn't know James then, so we spent more time talking about James and his background, and you could tell just the passion, ambition, and all the things they wanted to do. They were 27 and 28 at the time, but they had lots of ambition and talent, and given several things that they had done in their careers combined with their complementary skill sets, et cetera, et cetera.

That's something we look at and say, that's a bet worth taking. And now, to be clear, Hickey will always tell you this. You were taking less risk because you must approve every deal we do. We can only call a dollar capital from you with your approval. True, so there's always that check in place. So, it's different than us writing a blank check. And they spend it. We always have that control over the dollars. But, we saw enough in them. That we said, this is a good bet to take, and so, we sketched out a turn sheet on a napkin, said, we'll get you a real formal one, you know, tomorrow, and we did.

And, and so it was, that's how it started. If you said, what are the things you look for? I mean, there are lots. They both had excellent reputations. You check references on any of them; they're super intelligent, hungry, and ambitious. You know, little things like just wanting to move to Midland from Houston and Dallas, you know, that shows a level of ambition and what you're willing to do to make a business work because it's easy to say, I like Dallas Midland, it's not Dallas.

I'm not moving out there when you have to convince your wives to move out there. You just saw several things like that. Will's history can be interpreted in one of two ways. His poker history shows that he made money playing poker, and he was smart and calculated in how he did it. And, like to us, that's an entrepreneurial side. He didn't just get a job in the summer. He figured out ways to make money on his own. And so that skill set is hard to find. It takes a lot of work to find. And so the combination of those things. Okay, that's a great bet, but backing them with a 75 million commitment. And then let's go. 

Chris Powers: Oh, man, real quick. In this industry, you said moving to Midland, maybe it's on this one investment or just in general, like how big of a factor is it that they're close to the asset that they're operating?

Billy Quinn: Yeah. It matters to a certain extent it matters. It matters when they start doing what they're doing from a deal flow perspective and an asset level. They now have real contacts, people on the ground, etc. So, if Will and James were in Fort Worth or Dallas, it wouldn't be as big a deal today for them as it would have been going back seven or eight years ago.

Chris Powers: Okay. So you get the 75 million term sheet back on the napkin. How long from the back of a napkin to like we're in business is this months, weeks, years?

Billy Quinn: Eight weeks, so everything's signed and done by mid-December. 

Chris Powers: Okay. You guys get off. How do you know, and you can tie it back to this company, but you've done, you've been involved with energy transfer, Permian resources, Pioneer, a lot of these big companies, like, how do you get some idea these are going to be big companies?

Billy Quinn: Well, you don't know; the honest answer is you have no idea. You have to look at and assess several things as a company, and your investment moves along as to the right decision. So Mesa Pioneer started out as a large company and a public company.

So that was there anyway. Energy transfer started with an acquisition tied up. And so it didn't necessarily have to get public, but the way the world moved back then and the MLP world shifted so quickly, where that investment was, it was natural and a natural fit. At the same time, PR was a little different.

I mean, we were a private company for, you know, for basically seven years; we're eight years in now for basically seven years. And in the last 15 months, we've become a public company; when we do, you know, it will get big. So, the starting point is as you progress, you're looking for signs, both in what type of assets and asset base you are building. And what are the team's capabilities? 

Chris Powers: I mean, in Delaware, there are tons of private equity-backed teams chasing Delaware, but only one became.

Billy Quinn: And that was like, look, all that stuff. there'sThere's a combination of skill and luck that goes into that. And so the funny part is when we sketched out their term sheet on a napkin, the other napkin was, well, what's the business plan?

And you look back, and you laugh. It's like, well, oil prices are 30 dollars and falling. We're just going to buy long-lived conventional assets from Exxon and Chevron. That was their business plan. I mean, it was; we joke about it today. It wasn't their business plan, but unconventional in the Delaware Basin was different from theirs.

But what they did, and this is also a tell-tale sign of, can you get big is, and, you know, we see both sides of the coin, and I look at this and say, you know, even in our business, what are the most important things you can do and what are signs of great leaders? Great leaders hire great people, and they're not worried.

They don't feel threatened by having people more intelligent than them around them. I know in my office, there are three, at least three other people who are a lot smarter than me. And that's the way it should be. And with Will and James, they're brilliant individuals, but when they hire people, they employ knowledgeable people who are outstanding at what they did and their 1st thing when they decided, hey, we need somebody to help us on the capture side.

They went out and hired a top-notch, well-known landman, Brandon Gainer. And when they did that, even though it was early on, it was in, I think, the first quarter of 2016. It was one of many inflexion points of their hiring. They want to; they know already, at their age, they know you want to hire the best person.

You want to get great people in because having multiple great people working together will create the best outcome. And this isn't just about them. It's about the investment and how everything goes. So, if you said what made us think or believe we could be significant, there's never one thing. Still, a starting point is, are they secure enough in their shoes and have the humility and the intellectual honesty to say, No, we need great people.

I don't care if that person's more intelligent than me; we'll pay them. We're going to pay up for great people. And so that was the first of many and every hiring decision over there. Not since they've gotten large, I mean, because I'm not close to it, so I can't comment on it. But in the critical days, in the early days of Colgate, all the hires were phenomenal. 

Chris Powers: And what's your role in the business once the money's in? Like how does that evolve? Where are you? How do you know you're doing an excellent job as a partner? 

Billy Quinn: Yeah, the first thing is, is it's, we're trying to strike a balance because we control the board, we technically contain the company.

Our balance is, okay, we want to let them run this business. It's their business, let them run it and, you know, give them the rope to be themselves. At the same time, you want to have enough checks and understand, okay, are all the right things being done? Because we have the luxury of having a much larger data set as an investor in multiple companies.

When running one company, you have your data set and some peers with whom you share information. For us, it's up top at the parent level. We see. We see wrong words at the parent level, but it's up top at the investment fund level where we see multiple companies doing what well, who's not doing things well, and what mistakes people make. So we can share that with the teams. So our job is to balance when we, you know, when we say, we think you should do this, but we're still determining. Or no, you need to do this, so it's always a gentle balance, and it's best when both work together.

So, and that's the other thing I would say when it comes to Will and James working with us th, ey would call us for input and advice. Way more often than we were calling them to say, Hey, did you guys think about this? We may need to do that. That's great because then you have a genuine, natural partner relationship, and nobody's afraid to make a mistake.

Nobody's afraid to come up with a bad idea that the other person says no to. And again, it leads to a better outcome. The worst thing is when you have for us as an investor, When you have teams who think that they have to do it all themselves, right? And so they should share information more readily.

And with that, what typically happens in those is. It's just, I think it has to do with the style of management and thinking that way is, it leads to a bad relationship because if you're not asking for advice or sharing information as readily as you should, it means as an investor, you're generally going to get lousy information later than you should, which then you lose confidence, you lose trust and, and the relationship goes the other way.

Chris Powers: So it's not uncommon for management teams to be called up by the week; it's not like they're calling.

Billy Quinn: Daily, if you talk to Will and James, Stu Stover at Slant, and our team at Infinity, they're on the phone with our office daily. In busy times, when they're incredibly active, our companies may be on the phone with one person in our office multiple times a day.

Chris Powers: And what types of questions are they asking you? Like, what are they coming to you for? There are boots on the ground. You've got money, you've got experience in these basins, but what is like, what would they need to be calling for daily?

Billy Quinn: It could be anything from, we're looking at these acquisitions, and what do you think about these, and here's what we're seeing, and what do you, and they want strategy advice.

We're looking to hire some people to do this. Do you think we should, or should wen't? It is what we need. And so it's a handful of anything to negotiate a midstream contract with a third-party midstream company, and they're calling us to get ideas.

Hey, what have you seen out here? Have you seen something different anywhere else? What do you think of this? And so it's just a lot of times it's brainstorming and bouncing ideas off of each other. I'm thinking let's make sure we cover all the bases. And it's like investing; whether investing or building a company, it's a team sport.

They're not individual sports. No one person can do this stuff all on their own.

Chris Powers: What were they calling and asking you during COVID-19 when oil was negative? What were those few weeks? 

Billy Quinn: What's going on? What do we think is going to happen? Anticipating what might happen. And that's where we were more proactive with our teams because, on the micro and macro levels, we saw what could happen with volumes where demand fell as much as we thought it would. And candidly, as much as it did, what will you do with the volumes?

You can't just permanently shut in these wells. So the first thing we're doing is calling our company saying, Hey, what are you doing? What's the plan? If we're not, are we shutting in? Are we choking back? How are we going to handle this? And that was an exercise for many of our teams because it was something none of us had ever seen.

I hadn't seen it before. And I've been investing in this business for a long time where you had hostile prices. No, nobody has, so we were dealing with that. We were dealing with PR; we had a drilling program. Do we keep drilling? Do we put the rigs down? You know, and understanding that, you know, the daily nuance of the math behind doing that.

We had a massive hedge book. We were like a hedge fund on a mark-to-market basis. We felt like a hedge fund because we had all we had hedged into a drilling program. So what when we decided not to drill? We had this prominent in-the-money hedge position, and what do we do with that?

We should unwind some or all of it, pay down every dollar debt, and then just be, we weren't well capitalized at the time. So, the one thing I would say in just backing up a step is what happened during COVID and what we did with all of our companies. When I look at what happened before, during, and after, the critical thing was what we did before and how we ran our business because there wasn't maybe one fire in our portfolio that we would consider a big one. There were just a lot of little ones that we were dealing with. Still, we had prepared our companies from a hedging perspective, a debt perspective, where we're modest to low leverage, low GNA, all the right things to where something like that happens, you're not, where other companies were, it's six weeks, it's eight weeks, it's 12 weeks before we're BK, we can't last here.

That wasn't a topic of conversation. It was how do we maximize. If you're in that position and something like that happens on the backside, you are in a phenomenal position on a relative basis. And so it's how do we take advantage of that? And that's where, if you look at a Colgate story, we were in an incredible position going in managed through that health, which it was for everybody on the backside we're in such great shape. And if you look at what happened in 2021 with the company, another inflexion point: we got a bond, a couple of them, a bond deal done, and then a few significant acquisitions. You know, over that year, over, you know, 700 750 million in acquisitions. So, if we weren't prepared beforehand, we would not have been positioned to take advantage of what was to come after.

Chris Powers: And when you're buying 750, is it your all job to raise the money, or are you helping get the money from other people? Like, how do those come together?

Billy Quinn: That's strategy. That's where every company is different. So, we had one company in our portfolio, Infinity Natural Resources. They're in the Marcellus and Utica.

They lined up a big deal. They tied up a big deal this past summer. Well, it's our job working with them, saying, how will we finance this? They were closest to their banking group. They worked with their banking group on what the right size is, what we can upsize to, and how much, and then, we're the governor on the engine because the bank may lend you 200. Still, we'd look at it and say, you know, that's too much; we think it should be 120, and so that's where we would step in on that side, with that deal, on that part of the equation, and then the plug is equity.

And so then it's our job to figure out, okay, how do we do this? What's the right way to do it? In that particular instance, the Colgate deal was unique and multi-pronged because we had just gotten a bond deal done. The company was regularly talking to investment banks. Could we do an attack on what if we did a deal like this?

They were ahead of them; they knew what they were looking at. So they were. They were ahead of the curve, and remember, at that time, the big deal, the big cash deal, was the oxy deal, roughly a little bit over 500 million dollar deal, but we also did the Lux deal, which was 300 million dollars.

At the same time, and that was with stock. So, that company had no debt on it. So it was an equitizing deal. It was kind of D levering. So, using a combination of the two, we looked at those deals, and this is us working with management. What's the right deal? How do we do it? How do we negotiate these? You know, it's a joint effort.

It's never just one group or the other. And what we all concluded is we did this deal the right way. We can issue bonds and sell some assets on the backs of what we did at closing on the oxy deal. We can debt finance the cash ports in the bond market, with the lux merger being all equity and the oxy piece being.

All debt with, you know, with a subsequent asset sell down, generating some cash. We're good, and the balance sheet looks the way we all want it post-deal, but that's, if you said, what's our job in that we're helping them, it's, it's on some things. It's we're more involved in other things. We need to be more active.

And at the high level, it's okay. Do we all agree that this is the correct balance sheet after the deal and that these are the right things to do with the company and the assets? It is the right hedging program. And you come together, devise the plan and then execute it.

Chris Powers: I know how it works in real estate but from an oil and gas perspective. When you buy 500 million from Oxy or whatever transaction it is, is it usually because the buyer thinks they can produce the oil cheaper? There's a different strategy. Why would Oxy sell something that was obviously so valuable for half a billion?

Billy Quinn: Yeah, well, Oxy was looking to clean up, do some balance sheet clean-up post coming out of COVID. Looking at where they're going to spend money drilling, and for whatever reason, they identified this pool of assets as needing to be more strategic to them, even though they were in the Delaware Basin. Any investment banker at the time would have looked and said, okay, obviously Oxy will sell these assets.

It is why: who are the likely buyers? And there weren't a few people at the time who had access to cash. So that limited the buyer universe. And when you looked at those assets on the map, they ran right up against the Colgate assets. So, what helps Colgate in that particular situation? One, the market dynamics were critical. Still, a close second is they could look at Oxy's reserves engineering, what they're spending on drilling there, what their costs are, and know what they can do because they had offsetting acreage and wells. And so they had a competitive advantage from a knowledge base that they knew it makes sense. And this is the price we could pay. And this is how we'll get it done. And we can execute on it. 

Chris Powers: We jumped forward, but why did you leave NGP? And was there a new strategy for Pearl that was different from NGP? What, what was that all like?

Billy Quinn: No, so NGP was great. I was there for almost 20 years; it is a fantastic place with amazing people. There's no regret of anything with NGP.

When you look at our first eight funds, we just reached a point where we were 30 38 million dollars. Upwards to 1. 3 billion, two components of that. There's the investing side, and then there's the internal people management side. Our fund nine jumped to a 4. 3 billion dollar fund gang.

Yeah, so it was a big jump. We went from 1. 3 to 4 billion dollars and could do that because our returns were phenomenal. That kind of 10, 12-year run was incredible from a return perspective. We did both the Mesa deal and energy transfer in that window. So we got to a point where we're investing to the four, 4 billion funds we raised in 07, 08, a great time to invest capital because we're right on the heels of financial crisis coming into 08.

We had all this dry powder in a 4 billion fund. And what hit me over late 08, 09, 2010 was. That's a lot of money, and investing like we used to is just; it always gets more brutal, but having this quantum of capital just made it difficult. And you layer that the investing side on top of the private equity business is scalable.

You know, people always talk about, Oh, it's great. You get these management fees, so it's scalable. You don't have to hire people. No, that's not necessarily true to a certain extent. It is. If you jump from a 700-million to an 800-million fund, it's scalable. You may have to hire one person. You may not have to hire 10 or 15.

You're hiring more people if you go from 1. 3 to 4. So, our headcount went up tremendously. I don't know what was at the peak, but we were pushing 90 to 100. And. There were six of us in the early days, six or seven. And the steady state before the $4 billion fundraiser was in the 20 to 25 range.

So, you know, over three or four years, it just hit me as a managing partner of the firm. It is a lot; you know, we've had an incredible we've run. We've all done incredibly well financially, and then we all ask ourselves, okay, how happy are we day to day? Do I want to keep doing this?

And for me, it was no; you want to return to being a smaller group, having fun every day, and not having to do deals because you have so much money. I just wanted to get away from all that. And it was hard because the people were great. My partners and all the people at NGP were excellent. Our portfolio companies loved them all.

Not all, but most, and then our LPs do. We had an excellent LP base. However, that was changing because when you go from, call it, a billion and underfund to a multi-billion dollar fund; the LP bases tend to shake up when you make that type of job. You go from the Less Endowment Foundation, 20- 50 million checks, more big state pensions, and sovereign wealth funds cutting 200- 300- 400 million checks.

But I had an obligation to all of them, at least through our ninth fund, which is the 4 billion fund. And so when the topic came up of fund 10, another 4 billion fund, I just sat there and said, Hey, I'm not signing up for another ten years with what I'm doing; how this works.

I don't want to do it personally. And so what I did is, unlike most people, up and leave at some point; I didn't feel like I was in a position to do that given my role in the firm. So I went on a two and a half, three-year glide path, saying, okay, I'm going to transition out as we have monetization and fund nine mature. We sell off some companies, and I'm not in the docs, as a full-time investment professional in the fund, in fund 10.

I just felt that that gave me the. Although an advisor, I was a senior advisor in the Fund 10 docs, giving me a nice transition. 

Chris Powers: The pro is we can raise smaller amounts of capital and be a more agile, more minor team.

Billy Quinn: Yeah. In fairness, when I left NGP, I didn't know Pearl wouldn't exist.

Candidly, I knew I liked investing. I learned how I wanted to support. I knew the things that made me happy. And so when I left NGP, I was opening a family office to invest my money. I did that with Chris Alds and Jim Wales, the co-founders of a very successful NGP 9 portfolio company, Teak Midstream.

And I've been friendly with those guys. Do a lot with them. They're incredible individuals. And so they were looking to set up their own family offices, wondering what they would do next, if anything, because they'd had a long, successful career in the midstream business.

So we said, let's open up an office together and have it and share ideas, deal flow, just that type of thing. When I formally exited in late 13, early 2014, Oil prices were a hundred and ten, pushing as high as one thirty, one forty. It was the go days of shale.

Raising money was very easy. Lots of multi-billion dollar funds. It was crazy competitive, and I looked at it as an investor. I've been in this business long enough and have seen cycles in other companies. It feels way more like a sale than a buying opportunity.

I don't want to avoid jumping back in, so I wouldn't raise a fund to buy in that market. And, you know, as I've said thousands of times and probably we'll say a thousand more is, you know, when you're an investor, a lot of times you don't get to choose, you know, when you do things and how you do them, you look at the market and the market presents you with an opportunity, and as an investor, you know it, and then you have to take advantage of it.

And so in the summer of 2014, oil fell from the 100s to, you know, to 60 and 70, and then proceeded to tick down by the end of 2014. And ironically, I was a Wharton undergrad. They interviewed me on an energy article in May of 2014. And I commented on oils at a hundred dollars.

It's a wrong time to invest. I'm a seller, not a buyer, and oil falls. And then, by the end of that year, I'm talking about starting up again. And so, by the end of 2014, I was gearing up to launch what is now Pearl. And it was the market. It was the right timing, the right time to get out.

It's that you always want to be prepared. Be prepared to deploy capital when markets are softer, not stronger. And so, that's what led to Pearl and the timing of Pearl. We always said day one, starting it, and Chris Alds became, you know, a founding partner of the firm.

And when LPs would say, what do you want to do? The answers were straightforward. We have two things, which will sound like a lame mission statement. But we said we wanted to make money. And have fun, and if people said, well, which one's number one, I said, well, it's making money because if you're not making money, you're not having much fun.

You're not having fun, so that's the number 1, and that's why our partners invest with us. So, we want to do that, but we want to have fun doing it. We want a good, relaxed atmosphere in the office where we take the work seriously, but not ourselves. It's a smaller group, but still, today, we're 12, 13 people.

No turnover. Everybody's been there since day 1. That's why we want to have that type of atmosphere, and that's what we've done and where we are today, and we're happy with it

Chris Powers: It's funny. I asked somebody in real estate who's been in a long time, like, what's your mission statement?

He wanted to refinance our properties every five years, get cash back and continue giving it back to investors. Everything else is talk. Suppose you're not doing that. You see some fancy mission statements out there these days. 

Billy Quinn: Yeah. And there are by-products of all that that are rewarding.

Like for us, which I've been doing long enough, it just makes you feel good when you have an investment that does incredibly well, and you see all the people at that company; it changes their lives, right? Financially, it changes their kid's lives. You see that happen. And it makes me, as an investor, feel good that, hey, I wasn't the reason this happened, but I was a big part of why it happened.

The same thing happened in our office. When you have, you know, when you have, you know, wealth-changing events and, you know, people, sets people up to do things differently, give money to charity, and do all those types of things, that feels good. Now, if you're making money, you can do everything. If you're not, you're not going to do them.

Chris Powers: How has just energy investing? Change since those 30 million funds in 94 to today, and there's been sentiment shifts along the way, like, if you describe how it's changed over 30 years and where we're at today, what's been your observation? 

Billy Quinn: Yeah, so it's, you know, the proverbial saying the more things keep changing, the more they stay the same. That is, the oil and gas business is volatile and cyclical. And they're going to be good times and bad times and good times. It would help if you prepared yourself for the bad times. So you're set up to take advantage of things in the good times. And we have, in some ways, gone full circle.

And I can start on several topics. The first was raising funds at the energy private equity level in the mid to late 90s. It took work. There were only so many investors out there. You know, our first institutional-funded NGP was fund four, and it was 150 million funds. And that at the time was a big fund, now 150 million funds, that's barely a fund in business, but it was hard, really hard raising that money. Early on then, it got to mid-2000 to 2003, 2004, 2005 through 2015. And if you had a pulse, you could raise money. And there were a lot of people who did that.

And, of course, that floods the business, but it drives returns down. Today, it takes a lot of work to raise money. And today, it is tough to raise money when things are on a different scale. It's different for some of the same reasons but also others. I mean, if you go back to the, you know, the mid to late nineties, the business hadn't been a significant generator of accurate, reasonable rates of return, which up until a couple of years ago, we probably the oil and gas business had a valid 7, 8, 9 year period where the company didn't generate reasonable rates of return, in fact, depending on the window you look at in there, it destroyed capital. And then you've had the, you know, the whole climate push, the anti-fossil fuel push, ESG, whatever you want to call it. It's all the same bucket to me. You've got that layered on top of it.

So, it's made it harder to raise capital. And so on the investing side, again, with the, with the preface that it can sometimes take effort to make. Suitable investments are never easy, but certain times are more accessible; it's easier to do deals at prices that look at least attractive on day one. And that's how it was the late nineties into, you know, through the, you know, the oil crash of this 98, 99, you know, through to 2000.

You could buy things on paper that made economic sense in the financial model. But there was a window from 01 and 02 through with little blips in between. Or, often, you run a financial model, and things would trade. You couldn't run the math on the page and make it make sense.

And so things got frothy in there, and it got tough to deploy capital intelligently. And now we're back to the business is disciplined, actually disciplined in a better way than it ever was in the 90s. 

Chris Powers: Okay, why? 

Billy Quinn: Well, people are forced not just to generate rates of return on paper but to do it cash on cash.

So there was still a lot, even in the 90s, there were some dividend distribution models, but things were still, Hey, let's drill a couple of wells, that'll come on, it'll be, there'll be PDP wells, but it's going to prove up 15 more locations, and we're going to be able to sell some of those. As well, so while the exit would be cash on cash, it was still the business of the field throwing off positive cash net to the owner, whoever it is, whereas today, when you look at these companies, they're forced to say, I cash flow a dollar.

And I will deploy 40 and 50 cents of that back in the field. I will either have slow or reasonable growth, but being somewhere between 2, 3 per cent or 8, 9 per cent, I've got extra money to pay down debt and payout distributions to equity holders. So, that didn't happen in the 90s, and it didn't happen very much in the 90s, but it's happening today.

And that's a good balance because it forces people to make more challenging decisions on spending capital. And that's why you've seen, you know, real capital discipline in the oil and gas business. 

Chris Powers: If you could pick, like, one price of oil inflation adjusted for the rest of time, that's like the best price for oil like the mid-seventies?

Billy Quinn: Yeah. So I like what I always say now: If oil prices are between 70 and 85, I'm happy; I'm ecstatic. I think I'd rather have 80-dollar oil than 95-dollar oil because it creates all sorts of other issues and, you know, we, in our office, we walk around saying, well, if you can't make money at 65, 70, then you're in the wrong business.

It would help if you got out of this business. So 65, 70 is the floor. As you start getting closer to 60, the rig count will fall. How you manage the company becomes very different. So, and that's long-term sustainability. Suppose we sit in the 70 to 85-dollar window. It's a good, healthy business with real capital discipline.

You won't get any frothiness, nor will you get the opposite effects of dramatic price plunges. 

Chris Powers: How do you think about the consolidation going on right now with Pioneer and then Crown Quest or Crown Rock? 

Billy Quinn: Yeah, I mean, this business, like I said, the more things change, the more they stay the same.

This business has gone through this way before, on a different scale, in an other way. They're always different. But if you look at Oxy's deal with Crown Rock, People say, what are the positives or negatives to you, Pearl, and your investment firm? I don't know. They're all positive.

And they said, well, what do you mean by that? Doesn't, that's a rich price. I said, yeah, it's a rich price. So, it makes PR look even better. The thing makes the things we own look even more attractive. So that values up, what is there a negative? What about consolidation? Does that create a? No, it creates buying opportunities because, as Oxy said, they will sell between four and a half and 6 billion assets.

Well, here we go on the cycle again. You have consolidation, and it's just natural, right? We see this in our companies. If they're a company, they grow from 25 to 150, then they do a deal and become a 300 million company. Often, the first 20 million assets are no longer relevant to them. It doesn't belong in their hands, and they look to sell it off.

Well, you're going to see a lot of that. With all the consolidation going on behind this, you will see divestitures. It may take a couple of years to get there, but, in some cases, depending on who's buying, Oxy, for example, is doing this on a lot of leverage. So that'll come faster than if an Exxon when Exxon buys Pioneer.

It may take five years with Exxon now, but because of this acquisition, you will see divestitures that they may have yet to consider—3, 4, 5, or 6 years from now. 

Chris Powers: And so that leads to the next question. Is there still much room for private equity back to oil and gas companies for the foreseeable future?

Billy Quinn: Yeah, within reason. I wouldn't like this. It is partially selfish, but I don't want to see the go days back when anybody can raise money, right? That isn't good for the business. So where we sit today on the private equity side, where if you've generated returns and have the right team in place and been doing it the right way, you can go out and raise a fund.

Now, it may have been smaller than it was. Had these been the go days, but it keeps everybody balanced and the number of players out there confined, and I'm entirely comfortable with living in this world. We can do it. We can do well there.

Chris Powers: How does somebody know if they should go private equity? You see a lot of venture capital businesses that should wait to do that. The reason they could be better is because they took venture capital. Like, how do you know a team or a deal? Should go the private equity route versus passing the hat around or doing some other way of financing.

Billy Quinn: So that self-selects itself. If you need a quantum of capital, that is, north of 50, 60, or 70 million dollars, it's hard. Your first deal is a hundred-million-dollar deal. So you need 50 right off the bat. And then you want flexibility to do other things in bolt-on.

That's a hard pass the hat round, a rugged pass the hat round. Private equity makes a lot of sense. But if your business is you buy 5 million dollar fields, fix them, and sell them for 10. Somebody comes to us. Candidly, it's too small. We're not going to have an interest. But then my next question would be why?

Like why do you want us? You can do this on your own. What's your reason for coming to us? 

Chris Powers: And what's generally the model? What return would you hope to hit in X years to make a private equity deal work?

Billy Quinn: We always say we want to be 3X in 5 years.

What's right down the middle of the fairway? We want, you know, we want to triple our money in 5 years. We're not in a rush. If you get a quick flip, something in 2 or 3 years. I view that as more luck. That's more the aberration. We want to build the companies we discussed over a more extended period.

And if you have that, you can compound that; you can compound that capital. The three X is a bit arbitrary, but three X is 25 to 30%—the return rate's in the middle of the fairway of what we like to do.

Chris Powers: And then getting back to just the capital coming back in the industry.

Is there a reason that you gave three buckets before we were recording? Is there more capital starting to think about coming back in? Or is it still where we're getting less and less folks interested?

Billy Quinn: Yeah, and we're talking, to be precise. We're talking about the LP universe that invests in energy, private equity funds, oil and oil and gas fossil fuel, to be more specific, going back to when we were raised.

Our 3rd fund is a 720,000,000-dollar fund. We raised that we launched it in September of 2021, and I say this all the time, and it's the truth: we found into hurricane force winds; it was the peaking sentiment of anti-fossil fuel ESG; literally, it was like a week after we launched.

Harvard comes out and says we're not investing any more in fossil fuels. And, of course, that puts pressure on all the institutions that are located close by. And it was a challenging period to invest. And what we saw over the last to support, call it year and a half, two years, is there weren't that many that had burdensome mandates, and I don't know the precise number, but call it somewhere between 20 and 30 per cent had burdensome mandates.

And a lot of them were unannounced. There were some groups. We had some in our fund that didn't announce that they had a challenging mandate, but they did policy internally. They were not investing in any more fossil fuels. Then you had a big middle of, call it, 50 per cent of the investable universe that was, we don't know what we want to do.

You know, we have. We're over-allocated, plus the ESG plus this, they were on pause. So you had that middle ground where you didn't have the, call it, the 30 per cent that was politically opposed. To investing in fossil fuels and you had the middle ground, they didn't know what they wanted to do, and all of them probably had some tensions on there, you know, their investment committee or board level as to what is our role in, you know, in the fossil fuel world and how are we going to deploy capital here. And then you had the smaller group, you know, 15, 20 per cent of the names, maybe 25, but it's smaller where they run their institutions, their organizations, like real money making, you know, thinking investment firms.

And they look and say, wait a minute, if 60, 70, 80 per cent of the capital is pulling back. That's where we want to be now. Do the fundamentals of the business make sense? Yes, they make sense. It is where we want to deploy capital. So, that was going back to, you know, two years ago, call it, and last; I would say, up until probably when Russia invaded Ukraine, I think if you were to say, pick the inflexion point where people started saying, huh.

What are we doing here? Is there something we need to think about? and start revisiting? It's the early stages for many of these institutions, and they must move. They're not like us. We can pivot quickly, making an investment decision, and that's what we do. We do that daily. They're not set up to do that.

But when that happened, it forced conversations at the next board meeting as to wait, are we not thinking about this right and security of energy supply and what it means if we need suitable energy sources. And so when that dialogue started, throughout what's probably been the past 18 months, You've gradually seen the burdensome mandate of 20 to 30%. They're not coming back for a while, if ever. 

Chris Powers: They'll continue to use fossil fuels. They want to invest in them.

Billy Quinn: Yes, we can get into that later. The whole hypocrisy of the, I'll call it, the green movement, but it's it.

It cracks me up more than it irks me because it creates investment opportunities. But we've seen that middle group over the last six months; many of them are starting to sway back, saying, okay, I've had some realizations. We have more cash. The only thing that's returned capital in the last year and a half, two years are our oil and gas funds.

Our VC funds are horrible. Wait a minute, managing something worth fiduciary to manage this capital intelligently and by not investing in a sector that underlies. Is the economy around the world an intelligent thing to do? And so with those questions and underperforming, as I always say, and look, in the investment business, it's pretty simple.

You can underperform your peers in the short term, but in the long term, only one thing happens: you lose your job. If we underperform our peers, even if people invest in the oil and gas business, they will reallocate their dollars from us. To somewhere else to somebody else who's generating a better rate of return.

Chris Powers: Well, I'm trying to figure out how to ask this question besides being point-blank. You're raising in an asset class that leaves out the politics of raising oil and gas money. But when you're raising 720 million, how do you grow it? Do you hire somebody to pitch it? Is there a psychology around it?

Are you looking for an anchor first? Are you looking for a certain amount? Like when you set out to do it. Did it end the way you thought it would from the beginning, or what's your strategy around raising significant amounts of money?

Billy Quinn: So there are two parts to the answer to that question.

In your first fund we raised $ 500 million in our first fund, and most of that was raised candidly, as I was a managing partner at NGP for the better part of 20 years. Our returns were excellent. A lot of the LPs knew me. Many of the LPs were endowments and foundations, and they were moving away from the multi-billion dollar NGP funds.

So, there was an actual pent-up demand for the returns. You generate the most alpha—middle-market funds. And you do, like, the statistical studies on this are widespread. All in all, the investing universe knows that, hey, if I have a choice between investing a dollar and a $500 million fund or a $5 billion fund, what will I do?

Everything else being equal, you will invest in the 500 million fund. So there was pent-up demand. So, we were fortunate that it was a quick fundraiser. The subsequent fundraiser, our fund two, was. It was swift to say it was eight weeks because we returned to our LPs and asked, "Do you want us to go from 500 to 600?

Do you want your pro rata re-up? We had room for them all to take their pro-rata, and there was 1 LP who had been calling on us while between funds 1 and 2. If you want to get in, we could accommodate one or two investors for a small amount. Fund 3 was slightly different because we felt this was a different world.

We have yet to fundraise. If you look and say, what are things Pearl has done a terrible job at over the last eight or nine years? Our fundraising for Fund 1 was so easy that it made Fund 2 easy. So we were. We, and then we didn't go out until 2021. So, the world changed six years before we had an actual fundraiser.

So, we knew that we didn't know how much it changed, which was a rude awakening. And so we went, met with our existing and said, this is what we want to do. How much are you in for? We want to have a close in three months. And we had our biggest LPs all stepped up, and they wanted in.

So we had a good, chunky, good-size first close that happened in and a half months. The following 12 were brutal. It was hard; it was reaching out to whoever would take a call. And it, you know, some days it just, it was just frustrating because you get on a call with somebody and, and when a call starts with them looking at you thinking you're a complete idiot for wanting to be in the oil and gas business, that, and how are you ever going to make a dollar here?

And it's going away, and demand's going to zero when conversations start with, even if it's not those words, it's that tone. You leave that meeting, look in the mirror, and you're like, what am I doing? What am I doing? And so we ground it out for another 12 months. We, you know, we were lucky to grab a couple of really good, high quality, long-term institutions that were in the 20 per cent I was talking about that looked at the opportunity, looked at what we had done and said, this is what we want, which helped us get that to that level. So, the next time, what we're doing differently now is one. Fortunately, our returns have been top of the pack, and a lot of that's becoming public.

And so we're getting a lot of inbounds because people are saying, with a little shift to, " Hey, we're thinking about getting back in this. Some of them are saying, no, we are. We're looking at 2024 and want more exposure where the inbounds have picked up as a combination of what's going on in their portfolio and what's happened with our firm and our numbers.

And so that'll make our next fundraiser substantially more straightforward. But are we doing things differently? Yes, after the last fundraiser, we said wait a minute. We can't just assume that because our returns are best in class, that money will be there and invested.

We have to go out. We always have to be fundraising. We have to set things up, you know, 6, 9, 12 months before doing that. You know, for example, some institutions. May look at our numbers, some of the significant state funds that look at our numbers. We want to invest in this, but when are you raising right now?

Well, our process is 12 months. We should have started with you 12 months ago, but that's not a good answer when sitting there that day. So, we heard that some the last time around. So this time, we're being much more proactive and getting out and ensuring we're in front of the right people ahead of time. So, they're at least thinking about that.

Chris Powers: So why did you wait six years between fundraisers? 

Billy Quinn: Our first fund was in 2015, a 10, 12-week fundraiser. We started some, called it July one, and were done by September 30th. Our next fundraiser was in 2017, so two years later, we just, at our annual meeting, we looked at our LPs and said, we're going to raise the next fund.

It's 600, you want your pro rata piece. And all said, yes, I'm in. That fundraiser wasn't a fundraiser. It was all the same, and then there was a four-year lag from 2017 to 2021. With deploying capital COVID in the middle, we all lost a year there, right?

And so we lost the year. So it would have been three without COVID, but it was four. So, it had been six years since we went out on a formal fundraiser. 

Chris Powers: When you raise 700, how many? What do you think about that? How much of that's going to existing companies already in the portfolio that will need more capital versus new ones?

Plus, they will need more commitment than what we initially gave them.

Billy Quinn: Yeah. So, I would break that down into a couple of pieces. First, how much of that money will go into existing Companies that we've already with assets and other funds? At the same time, the number is low because it's generally low that we'll have a co-invest in following on investment.

We had a big one, and we did that, so it's our most significant investment. Fund three is a fund-one portfolio company, so that did happen, but I would use it on a blank sheet of paper. I'd say, yeah, that's a low probability; the next step is how much of that capital will get invested, committed first and then infused with management teams that are actually in your portfolio now, meaning they start a new company towards the back end or they sell and start a new company.

And our answer to that is generally 40 to 60%. Our portfolios are slightly different than some of the more considerable funds in that we like to be concentrated—so, five, six, seven investments in a fund. And so if we look at funds one and two and we say, well, there are four teams that we're starting over with, well, For the seven teams we're going to back, we've already gotten the portfolio, which means, okay, so if that's the case, and you do one deal into an existing team, that's five, you're going to do two new management teams in the life of the fund.

That's generally how we think about how many new teams. Then, the next step is to determine how many new teams you start up within the new fund. And that's two to three. 

Chris Powers: So that's a smaller portion. 

Billy Quinn: It's a smaller portion; now, fund one wasn't. But now we did business in fund one with people I'd been in business with.

And, you know, even the Colgate guys weren't people we met on the street before we did business. There was a long history with many of the people we did business with before. So, that's when you think through new management. And if you look at fund three, we have three new management teams, which are brand new management teams.

But two of them are the history and the connectivity of who they are and where we know them from. It is very similar to, you know, what you would say about Will Hickey and James Walther, that multiple people in our firm have known these people for 3, 5, 10, and sometimes 15 years. 

Chris Powers: Okay, so let's ask this question.

You're good at hiring people that have relationships in the industry. Like, how have you thought about that? Is it just dumb luck that you have hired all these people who know them, or what's your thought process as the firm's leader? Like, how do you think about it from a relational perspective? Cause you, ultimately, have to be; if I have a deal in the business, I got to think Billy's a guy I want to call.

Billy Quinn: Yes. And I want them to think I want to be in business, and I don't believe just me, it's people I know. I want them to think of me and your tour, Kevin and Steven, and they have relationships.

And so I want people thinking, Hey, when we get in business, what are we trying to build? Who do we want to do it with? When they say, who do we want to do it with? I want them to call us, and we always said this at NGP, and we say it at Pearl and, and I think you call virtually, maybe not all, but most of our portfolio companies at Pearl and say, how are they as partners, you get nothing but great feedback.

Because that's what we want to be as a partner. We're not; we're not anybody's boss. We don't try to; we don't try to act that way. We have the same objective. The objective is, how do we take that dollar and turn it into three, four, five over some time? Because that's where everybody wins.

Chris Powers: Alright, I got to pivot. Because you sent me this, well, there are a few things you sent me that were cool. But you were like, I love MMA. And then, obviously, the rise of MMA, but you look like you are more taught. I can't even pronounce one of them. Koi Jiu Jitsu. How'd you get into this?

Billy Quinn: So I've always loved the fight sports, and maybe it was back when I was a kid. I watched Rocky, and so I've always loved, you know, the fight sports, and it started with boxing forever because MMA has only been, the UFC has been around for 30 years.

And then it was about six years ago. They had a few UFC fights at the American Airlines Centre, and I went to a few of them, and then I was going to another one. I was at a bar right by and bumped into a friend who's also acted and been an attorney for us at Pearl on a handful of things. He was there and said, well, what are you doing here?

So I'd love it because you ought to train with me if you love this. There's this gym in Deep Ellum, and it's 2025 UFC fighters. I said, Oh, that's great, he said, train. I train with a UFC fighter. Come with me next week. And I said, Okay, I'm in, you know, and I'd always stayed fit. I'm in good shape and good cardio.

And so I went, trained with them for a day, and loved it. I was hooked, right? I was hooked. So then it was like, okay, there's the striking aspect. And then there's the ground game. I want to learn it all. And you just get hooked. And, you know, as you get older, you try to figure out, okay, what can I get incredible conditioning from where can I challenge my mind on, but also generally speaking, not get hurt and people think fight, you're going to get hurt fighting. It's like, no if you play ice hockey at my age, you're going to get hurt if you, I mean, there are certain things you do. You will. It's not if it's when you get hurt.

If you play tackle football, you're crazy. Believe it or not, it's not dangerous in a way of really injuring yourself because you're not getting into a fight every day. 

Chris Powers: Are you getting punched in the face? 

Billy Quinn: No, so I have to preface this. Generally, there have been a few occasions where I've said, okay, we're going to spot, like I've been called in.

So when I worked and mentioned this to you, the guy I trained with every day was Damon Jackson. He's a UFC fighter, and we become very close cause I'm with him daily. 

Chris Powers: You train every day? 

Billy Quinn: Yeah, pretty much every day. Six days a week at least. So, during COVID, he got a fight in the UFC. He won and then got another fight, and he said, I want you to come to corner it with me.

Chris Powers: What does that mean? 

Billy Quinn: So I was in the UFC bubble in December 2020. Cause Dana White, he was, you know, he was the front runner. He let it go. This COVID isn't, you know, and in hindsight, he's brilliant and right. We're not letting COVID stop this because we can't and shouldn't. And so, we were in the bubble. 

Chris Powers: It was in the Middle East.

Billy Quinn: No, they had Fight Island in Abu Dhabi, but they also set up the apex, UFC headquarters in Las Vegas. So I was out in Vegas in a. I forget the hotel, but it was like my son played youth hockey, and it was like a youth hockey hotel. There's a holiday and express or something where it wasn't the most excellent hotel, but they said they put all the fighters up there who were fighting that week. You had to come in on a Monday. You had a COVID test that afternoon. Then you had a coat; you had to go straight to your room.

You could only do something the following day when they cleared you. Oh, you're negative. You don't have COVID. Then you could train there, and then you had a COVID test again. And then the fight was on. It was on that Saturday at the Apex in Las Vegas. So, I got hooked. It's, you know, as I was saying, you, as you get older, you look for things that, what can you do that gets you in great shape, that keeps you healthy, holds, that challenges you mentally, and that does.

If anybody's never done Jiu Jitsu, you get smothered and put in difficulty, awkwardness, discomfort, and sometimes pain, but you'll never get hurt. And it's as much of a mental challenge as it is physical. And then when I go into the office, I'm relaxed. And I'm like, this is easy today.

What do I have to take on the office? I don't have somebody sitting on my head. 

Chris Powers: So, how long are you training every day? Like 90 minutes?

Billy Quinn: Yeah. Plus, it was early morning, like I was in there, 5:50 this morning. 

Chris Powers: Do you have a goal of becoming a black belt? Are you a black belt?

Billy Quinn: No. 

Chris Powers: Do you care? 

Billy Quinn: No, I don't care. 

Chris Powers: So how, what do you care about as it relates to this? How do you know you're continuing to improve, and is it something that stays stimulating?

Billy Quinn: It's constant learning. Constant correction. I will, from time to time, spar. So, I'll do that from time to time, and what I left out is when I was going to corner Damon's fight in Vegas, he said, well, it's just going to be you, me, and one other there for most of the time and then the coach is coming out.

He's coming out on Thursday, so you need to be able to spar with me and help me out. How am I going to learn how to spar with you? And he said, no, you're coming to team practice for a few Saturdays. So, I had to go in, and he told the other guys, as we did rounds, you do five-minute rounds, you're off one, then go back five minutes.

And this is a funny story. It happened, and this has happened a couple of times where I've done stuff like this, where I go in and do the team. I did one; I think it was. We had our LP meeting on Tuesday, and I did it on a Monday morning. I came into the office Monday afternoon, and my assistant looked at me and said, what did you do?

And I said, what are you talking about? And she said you have a black eye. I said I don't have a black eye. She goes, you have a big bruise right over here. And I was like, she goes, you must be in front of your LPs tomorrow. You're going to have to explain a black eye.

So it's great. Anybody interested in doing it should at least try it. 

Chris Powers: Okay. So, if you were, I wrestled for three years as a kid. I always enjoyed it. And I'm not saying I'm trying to get back into it, but if I was going to get back into it, how would you even go about vetting the best way to do it? I mean, you're clearly with some elite fighters.

Billy Quinn: find a great gym. And if you find a great gym, you'll find a couple of great coaches who can do that. 

Chris Powers: Do you have to be flexible? I can't even touch my toes.

Billy Quinn: Well, you want to be able to do that. I'm not very flexible, but I can touch my toes. You get older, you have to stretch out. 

Chris Powers: Okay. All right, Billy, thank you for joining me today. 

Billy Quinn: Sure, sure. It was a pleasure. 

Chris Powers: This was a pleasure. 

Billy Quinn: Yeah. Thanks for having me.

Chris Powers: I appreciate it.