Forging your own path: Sandra Horbach on building a career in private equity

This conversation between Sandra Horbach, managing director and cohead of US buyout and growth at Carlyle; Rodney Zemmel, senior partner and global leader, McKinsey Digital; and Alexandra Nee, partner and global head of diversity, equity, and inclusion for the Private Equity & Principal Investors Practice was recorded on October 26, 2021. It was part of McKinsey’s Women in Private Equity Global Forum, held virtually, with an audience of 143 women investors from 46 firms across North America and Europe. The following is an abridged transcript.

Rodney Zemmel: While Sandra Horbach certainly needs no introduction in a group like this, I’m thrilled to have the cohead of US buyout and growth at Carlyle with us. Ms. Horbach oversees Carlyle’s three largest private equity funds with approximately $60 billion in capital under management. Prior to joining Carlyle, Ms. Horbach was a general partner with Forstmann Little & Company, and also worked in the M&A department of Morgan Stanley. She earned her MBA from Stanford University and BA from Wellesley College. I’m thrilled to introduce Sandra to you all and look forward to our conversation today. Welcome, Sandra!

Sandra Horbach: Thank you, Rodney. It’s a pleasure to be here with you and all the women joining over Zoom today.

Rodney Zemmel: We will get to audience questions a bit later in this, but I have a few questions of my own to get us going if you don’t mind. Maybe a good opener is just to get your perspective on the state of the private equity [PE] industry today. Can you speak for a bit and give us an overview of where we are, how have things shifted in the past years, and where is this all going?

Sandra Horbach: Certainly. There is so much happening now. It’s an interesting time for the industry. There’s the global economic recovery, which we believe is sustainable for the next several years—largely due to productivity gains, especially here in the US—supported by continued record low interest rates. We all know that deal volume is at record highs. Dry powder is also at record highs, and more and more deals are getting done faster and faster.

We’ve seen tremendous growth in just two decades. Remember, just two decades ago, the buyout business was roughly $700 billion in size; today, it is over $8 trillion, and obviously the industry shows no signs of stopping. PE firms raised close to $550 billion, year to date, just in the first nine months of 2021—that’s the largest number raised since 2008.

When I look at it, in a nutshell, the competition out there is intense—then you combine that with the accelerating velocity that we’re experiencing in our industry. We’re seeing deal timelines that are 20 percent faster than they were just a few years ago. That’s a result of the pandemic and working virtually and remotely, which has really changed and accelerated how we work, how we do diligence, and how we make investment decisions. We think these changes are here to stay. It’s made all of us more efficient, and so we’ll probably have to adapt to these changes.

Rodney Zemmel: Wow, yes. That’s terrific. And certainly a lot of change for the industry over a short period of time and [with] different types of momentum for the industry to catch.

Sandra Horbach: Yes, and just in terms of your other question, about thinking about where Carlyle is looking to find opportunities, especially in this more competitive, fast-paced environment: we really believe that technology has completely reshaped the investment landscape. It’s affecting every part of our business now. And, fortunately, it’s opening the door to a lot more interesting investment opportunities, really transformative investment opportunities. That could take the shape of a company that is going through a digital transformation, where we take an established business, and we can take it to the next level [by] applying data and analytics, machine learning, AI, et cetera, to drive productivity and accelerate growth.

Technology has completely reshaped the investment landscape. It’s affecting every part of our business now. And, fortunately, it’s opening the door to a lot more interesting investment opportunities.

We also are seeing a lot of companies that are what we call “disruptors,” which are using new technologies to create new businesses. These companies are taking share; they’re disrupting their markets. They’ve come up with a better mousetrap, or a faster way to do something, or something that is considered more desirable for the consumers. PE firms can really help those businesses by investing and helping them scale and professionalize into more mature businesses.

What we’re seeing is that, although we go to market by industry sectors, we’re seeing our technology vertical increasingly becoming horizontal, where every deal is a technology deal. So we’re staffing teams where we have people from our technology sector, as well as our healthcare, or our consumer, or our industrial teams. It’s just so important and is a driver to most of what we’re looking at.

Rodney Zemmel: As the lead of our Digital Practice, I certainly see and agree with your assessment on the way this has truly permeated all aspects of business value creation in the past years and how much opportunity there is for PE firms that drive this within their portfolio or bake it into their bids. What else?

Sandra Horbach: Well, we are also seeing incredible opportunities in healthcare. We really think there’s a healthcare revolution going on right now with the innovation in data and analytics, genomics, biopharma, and just all sorts of new opportunities.

I would just say that the drivers of returns we think have also materially changed. It used to be, as you know, private equity firms were known as really focused on cost—efficiencies and restructurings and M&A—and that’s how they drove a lot of value. And, obviously, [they also did it] through leverage and cash flow to pay down that leverage.

But now, from our vantage point, with the size that we’re looking at, we’re seeing that it’s all about data: it’s digital, e-commerce, automation, and going into new markets, new offerings. In other words, it’s all about driving growth, both top-line growth and earnings growth.

We’re still focused on costs, obviously, and being efficient. But really, we always say, “You can’t save your way into a great return,” especially not in today’s environment, where people are paying multiples that are all-time highs in our industry. So, we need to adapt, and I’m sure you’re seeing that across the board in a lot of your companies that you work with. We really need to think about, “How do we reinvent? And how do we create value in this new environment?”

We really believe, because the industry is so competitive, that you need to have deep expertise in a particular sector. That could be a specialist fund or a diverse fund but with deep sector expertise. Because there’s just so much disruption going on in the world today, you really need to understand what’s going on and who are going to be the winners in the future.

Happily, we are seeing an increased need and embracing of diversity and ESG [environmental, social, and governance]. That’s true both within Carlyle, but [more] importantly, across our portfolio.

Happily, we are seeing an increased need and embracing of diversity and ESG.

In sum, I’d just say that change is accelerating across the board, mostly driven by technology. It’s impacting all industries, all businesses, and it’s also broadening our opportunity set. I think it’s an exciting time to be an investor.

To be successful, we have to do the hard work but really be forward-looking in terms of value creation, innovation, and leaning into change and embracing new perspectives. I will stop there, and let’s have a conversation.

Alexandra Nee: That’s excellent, thank you so much, Sandra. And I think you actually began to touch on this, but one of my first questions is—as we think about how the private equity industry has changed recently, would love to get your thoughts for some of the women investors we have joining us—on how private equity has changed over the last decade as a career? And how will recruiting into these private equity roles be affected by this going forward?

Sandra Horbach: I would say one thing that has been a welcome change is just a lot more focus on diversity. Unfortunately, a lot of investment firms are still not anywhere near where they need to be, especially at the senior levels, in terms of having diverse teams. We really think diverse teams result in better investment decisions. I’ve seen it over and over again: when we bring in diverse perspectives, we just come out with a better outcome. That’s true of investment decisions. It’s also true of business decisions at the board level and within portfolio companies. So, we still have a long way to go as an industry, but I’m thrilled to see that there is definitely a lot more focus on diversity.

I’ve seen it over and over again: when we bring in diverse perspectives, we just come out with a better outcome. That’s true of investment decisions. It’s also true of business decisions at the board level and within portfolio companies.

In terms of recruiting, I would say that we see more focus on specialization. When I started in the business, everybody was a generalist because, first of all, there weren’t that many of us and the businesses were much smaller. But today, amid so much competition, you really have to have an area in which you specialize.

The second thing I would say is I think that firms are looking for people coming out of different backgrounds, so not just necessarily the traditional consulting or investment banking backgrounds. I think people are opening the aperture to people with industry experience or other types of functional experience.

The last thing I would say is there [are] a lot of other important players who create a lot of value, both in the diligence process and postacquisition, during the value-creation process. Those are some of the functional experts that I mentioned on the digital side, on the talent side, IT, et cetera. They drive a lot of value. So that’s going to be, I think increasingly, an area where people are leaning in and where we’re even hiring data scientists.

Alexandra Nee: Thank you. You made partner initially at Forstmann Little and then obviously have been tremendously successful at Carlyle since. Is there any advice that you have for other women looking to advance to [the] top levels of their firms?

Sandra Horbach: It was [a] very different era when I made partner. At Forstmann Little, I was the first woman, but there were only five other people there when I joined, so I was the sixth investment professional! Fortunately, I was in a growing industry; and it’s always great to be in a business or a sector with tailwinds because as you grow, you can take on additional responsibility and advance very quickly. Today, private equity is a more mature business. The firms are more established, and they have more people, and so it does take longer to go through that path.

I also think the skills that we’re bringing as investors are so much more sophisticated than when I started out investing back in the late ’80s. The value creation that sponsors are bringing to portfolio companies, and the complexity of the world, and the diligence that we do has completely changed. As a result, it takes time to get to the level where you’re able to master all of that to run and lead deals, which is really our definition of what an MD [managing director] should be able to do.

So, in terms of advice, I would say the most important thing is to be brave, be your own advocate, and don’t cower away from the challenging assignments. One of the most significant assignments I ever had was going in to look at a turnaround that we’d invested a lot of capital in. It was almost a bet-the-firm type of investment that had gone south. I thought, “I can’t believe they’re asking me to do this, because what do I know?” But I jumped in, and I lived at this company for three or four months, trying to understand the problems so I could make my best recommendations for the changes we had to make. We were successful in the end, and it turned out to be one of our most successful investments. It was one of the best things that could have happened to me because I was thrown in, and it was tough.

But if you are successful in those types of situations, you get a lot of credit, and you’ll advance your career. You learn so much more, usually, in those situations where you’re struggling. So, don’t be afraid of a tough assignment; in fact, volunteer!

The last thing I’d say is, I always tell the folks at Carlyle, “Use your voice and own the room.” I mean, you have to feel as though you deserve to have a seat at the table. And I’m telling you right now, you all do. But you have to own it and be responsible for that and manage your own careers.

You can’t expect somebody else to be looking out for you. It’s nice if they do; it’s nice to get sponsors—that’s great; mentors are great. But at the end of the day, it’s on all of us to decide what we want to do and how forward-leaning we want to be. And then we just have to lean in. As I always say, “When someone opens the door, walk right through it, and go for it.”

Alexandra Nee: That’s great. Thank you. Sandra, at Carlyle, you’ve initiated a charge to make sure at least 50 percent of the firm’s incoming class are women and/or minority [candidates]. I’d appreciate if you can talk about why this is important and what challenges, if any, your firm has had in implementing this. And also, if there are things that you’ve learned—which other firms looking to follow suit can do to be successful here?

Sandra Horbach: Yes. I have learned that it must start at the top, and you have to be serious about it if you want to see change because it’s so much easier just to hire somebody who looks just like you and went to the same school and same fraternity or worked in the same investment banking group and what-have-you. So, you really have to be committed to it. We’ve been committed to it for over a decade.

I would encourage other firms that are truly serious about diversity to set the policy and enforce it. We’ve seen that’s the only way it works, and it’s not going to happen at the speed that we all are looking for it to happen if we don’t.

For the past eight years, all our incoming classes on my team have been at least 50 percent diverse. That’s our pipeline of future leaders. Also, for all lateral hiring, we require a diverse slate, and that actually goes through our Diversity, Equity, and Inclusion Council, which I’m a member of. The council is led by our CEO, and all the senior fund leaders in the firm are members, so that obviously speaks to how we view its importance.

Rodney Zemmel: Another question from the audience just starts with a thank you for being such a role model in the investing industry for so many women. Then it goes on to ask, “How is Carlyle approaching work–life balance in the new COVID-19 normal, or the hopefully soon post-COVID-19 normal—and particularly for working moms?”

Sandra Horbach: Flexibility is the most important thing you can give. Carlyle is back in the office now, but we have gone back in a hybrid model, so we are giving a lot of discretion to managers. For my teams, we are back three days a week, but each team can choose which three days [those] are, and those include travel days. If you’re out traveling for three days at board meetings, when you return, you can work remotely from home. What we, and I think all companies, learned in the pandemic is we can trust our employees: they are awesome and driven. I guess if you’re in this industry, it’s safe to say you probably all are. Based on what we’ve seen, people worked as hard, if not harder, during the pandemic.

We have dedicated employees, and they want to get their jobs done, but they do want flexibility and they deserve it. We all work really hard, so the more flexibility we can give to our teams, the better.

In terms of work–life balance, I do worry that the increased velocity in deal timelines that we’re seeing really takes a toll on the team. What used to be an already intense four-to-six-week process is now condensed into a three-week process. That’s going [to] hurt us over the long run. It’s going to hurt morale. But I think it’ll especially hurt women. Because, let’s face it, we do carry a little bit more responsibility, in most cases both at the office and at home.

We have dedicated employees, and they want to get their jobs done, but they do want flexibility and they deserve it. We all work really hard, so the more flexibility we can give to our teams, the better.

You can have the best policies in the world, but you also need a culture that supports diverse employees. In order to retain talented women, I think the most important thing you can give, especially now that firms understand you can be very effective working remotely, is flexibility (especially when someone’s earlier in their career and they are trying to balance family, work, and other responsibilities). So for us, if someone wants to take an extended period of time off beyond our standard parental leave policy, we hold the position open for them when they come back. To me, it’s less about the policies you put in place than the culture and the attitude that embraces people’s circumstances.

In the early days, people would say, “Do you think she’s going to come back after maternity leave?” It’s like, “Would you ever ask that of a man? No. Of course, she’s going to come back.” She didn’t go to Harvard Business School or the Stanford Graduate School of Business and work four years before that and work here for the last eight years, just to walk away now.

So, it’s a long journey, but it’s about shifting the mindset and creating a truly inclusive culture. This is the responsibility of the leaders of an organization. If you say one thing and you are acting differently, people see that.

It’s also on all of us to speak up. It’s about using your voice so that if you have an issue, you shouldn’t just hold onto it yourself and think you’re going to have to figure it out alone. Because I know people who ended up quitting because they couldn’t handle certain things, but they never raised [those issues]. So, make sure you ask for help if you need it and understand that if you’re doing a great job, firms want to keep you, so they’ll work with you to adjust things accordingly. It will help not only you, but [also] the whole firm’s culture of inclusivity.

Rodney Zemmel: How do you see ESG transforming the investment industry? Is it a “feature for now” or is this really something that’s going to stick?

Sandra Horbach: I think it’s absolutely here to stay. We are actually leading an initiative, along with CalPERS [California Public Employees’ Retirement System], to try to really define metrics so that we can, on a consistent basis, track progress against ESG milestones and across our broad portfolios—and not just at Carlyle, but across the industry. We think measuring helps get movement and results.

We don’t have a dedicated impact or ESG platform; we’re bringing ESG in and trying to embed it across all our portfolio companies.

ESG is climate change, worker conditions, diversity; it’s everything. There’s so much that sponsors can do to help these companies do better. We don’t have a dedicated impact or ESG platform; we’re bringing ESG in and trying to embed it across all our portfolio companies.

Alexandra Nee: What do you think private equity investment professionals don’t spend enough time on when looking at deals? What are the common missteps or the errors that cost them?

Sandra Horbach: I think it’s the people side, because I think a lot of private equity folks are very transactional. Now, with this compressed time frame, it’s hard to get quality time with management teams that are going to be your partners over the next four to five years. When I started in this business, you basically lived at the company for a month while you were doing your diligence. You really got to understand the culture, people, and strengths of an organization before you made the investment, as well as, naturally, the opportunities for improvement. It’s very hard to do that in today’s marketplace.

The most successful PE leaders are those who continually develop their network and relationships so that they have a relationship with someone before we get to the point where we’re talking about an investment. I always say, “If you meet a management team for the first time at a management meeting, you have already lost the deal.” Because someone else was there, and they’ve got a leg up, an advantage in that transaction.

That is actually good advice for women because I think men do it better than women because we have so many other things we’re juggling. But you have to take time to develop and advance your network, keep it current, and cultivate it. It’s so easy to just get absorbed doing work all the time, and the relationship cultivation can always be put off till tomorrow. But over the long run, over your career, those relationships are really going to serve you well if you’ve been a good partner. And it’s been a two-way street in terms of what you’ve given to those other professionals.

Rodney Zemmel: What [are] one or two pieces of career advice, particularly for women who are building careers in PE, that you’d want to pass on?

Sandra Horbach: I would say, “Keep at it.” If you feel like your career is going to be limited in your current firm or you don’t like the culture, don’t stay there, but don’t leave the industry. Go and find another firm. Believe me, there are so many firms out there now. Just redirect and pivot. It doesn’t have to be a name brand where you can go and get a positive, great experience—because this industry is so much fun. I mean, we get to see so many different types of businesses and situations, with so many amazing management teams and people, all while working with really smart people within our own firms. You are never bored in private equity. I’ve never been bored in 30 years.

Tenacity, resiliency, grit—they pay off over a career.

The other piece of advice is just that there is no substitute for hard work. Many people ask me, “How do you get to this or that level?” I always have the same response: “Do the best job you can in the current job you’re in.” That’s how you get to the next level—really distinguish yourself and make sure you become indispensable in some area. And try to have fun too!

Don’t take yourself too seriously. There are tons of bumps along the road. My career looks like it was just straight lines. But it wasn’t, and no one’s is. You have to go with it to be able to deal with setbacks and failures and not let them get you down. Tenacity, resiliency, grit—they pay off over a career. I wish everybody well, and again, I’m happy to have been a role model for many years. I just want to see a lot more women in senior roles be able to play that role for their organization as well.

Rodney Zemmel: Thank you. That was really, really super. I really appreciate you spending the time with us today.

Sandra Horbach: Yes, so happy to do it.

Thank you for reading the abridged transcript of the conversation between Sandra Horbach, Alexandra Nee, and Rodney Zemmel.

For more information on the work of McKinsey’s Women in Private Equity Global Forum, visit our page, “Women in private equity.”

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