This week on the podcast, Matt sits down with Chuck Bauer, partner and head of investor relations for EnCap Investments. The episode begins with Chuck walking through what EnCap does as a private investment firm focused on North American energy markets. Matt and Chuck then dive into what alternative investments are as well as the importance of establishing and maintaining relationships in this industry. The conversation concludes with Chuck discussing his journey from working for a Congressman, to going back to school for his MBA, to ultimately working in alternative investments.
Episode Transcript
Chuck Bauer 0:00
People that are successful in this job are people that go places. Simply you cannot
do it behind the desk. You can't do it through email. You can't do it. You have to
go sit down and get in somebody's face.
Matt Waller 0:12
Excellence, professionalism, innovation and collegiality. These are the values the
Sam M. Walton College of Business explores in education, business, and the lives of
people we meet every day. I'm Matt Waller, Dean of the Walton College and welcome
to the Be Epic Podcast. Today, I have with me, Chuck Bauer, who is with EnCap Investments.
And he heads up fundraising, and also investor relations. Thank you so much, Chuck
for joining me today, appreciate it.
Chuck Bauer 0:45
Great to be here. Great to be on campus as well. Beautiful campus in Northwest Arkansas.
Matt Waller 0:49
Isn't it? It's amazing. Although, unfortunately, you came on a kind of a cloudy day,
it's usually sunny here and and perfect weather but,
Chuck Bauer 0:58
I told my son who's touring here today that if you can like it on a cold, windy and
rainy day, those days when it's 75 degrees and sunny, it's gonna be the best place
on Earth Earth.
Matt Waller 1:09
Absolutely. It really is. Well, Chuck, I'm really thrilled to have you. You know,
within most business schools, there is less emphasis, I think on alternative investments.
First of all, there needs to be more, because it's becoming more and more important
in the financial system. But even within the alternative investment category, and
for those listening, alternative investments include things like seed funding, venture
funding, private equity, these kinds of things. But even within that, to the extent
they are covered, many times we don't cover fundraising. And that is a critical part.
And it's an area that you have expertise. And so I want to talk to you about that
today. But before I do. Would you tell us a little bit about EnCap Investments?
Chuck Bauer 2:00
Yes, certainly happy to do it. EnCaps is a 35 year old private investment firm focused
on North American energy markets, with offices in Houston, San Antonio, and Oklahoma
City. We have three verticals, three investment verticals, three distinct teams that
focus on three distinct parts of the energy value chain. So we have a team that invests
in the upstream segment of the energy value chain, a team that focuses on midstream,
and a team that focuses on energy transition, primarily around the decarbonisation
of the power grid, green field opportunities around wind, solar, and utility scale
energy storage. Midstream would be the pipeline systems gathering, processing, treating
compression, all those things that after you capture the hydrocarbon at the wellhead,
you've got to move it and get it to a market to be sold or to the end user. The upstream
companies are the ones that are out there drilling for natural gas or oil. And so
we we back companies, so we raise capital, create a fund and then those funds ultimately,
back portfolio companies that we build and grow and hopefully become a strategic asset
that someone else will want, we can sell that business to them over time.
Matt Waller 3:10
Does each time you each time you raise a fund, does that fund focus on one of those
three areas or a combination of?
Chuck Bauer 3:19
They're three distinct funds that we have. And so they don't, you know, there's there's
not crossover. And so the the individual investment teams within EnCap, are focused
on their own specific vertical. And so they're closed end funds, they're typically
10 years in life. So there, they fit right in the middle of that alternative investment
category that you referenced in there an illiquid asset for investors. And it's, as
you suggest, it's a growing area. The markets been a growing area of the market over
the last 17 years and an important one for public pensions, for sovereign wealth funds,
for insurance companies, healthcare institutions, college endowments and foundations,
a lot of college, college endowments and foundations actually, really were one of
the leaders in the alternative investment space, one of the people that came out,
following David Swensen at Yale in the model that he put together, really, what's
the endowment model of investing? We're probably 30 to 40% of the capital goes into
illiquid investments. He was the one that pioneered that, I think back in the 70s,
maybe early 80s. I'm not sure when he did it, but maybe the early 80s. And this whole
organization, whole industry has developed over time.
Matt Waller 4:35
So Chuck, since a key part of the purpose of this recording is to fill in the gaps
around fundraising, and specifically with alternative investments. Would you talk
to us a little bit about how that process works and your experience with it?
Chuck Bauer 4:53
Yeah, certainly. Think that it's, it's really a there's a I'm going to talk about
two parts. One is the personal relationship side or the or the relationship side of
that business. And then two's fundamentally the process of that business, the actual
fundraising that takes place. And so you'll have a firm that just has decided they're
going to raise capital to pursue to build a fund to pursue investments in a specific
sector, specific strategy, they will need to go identify sources of capital, the sources
of capital are what I've talked about, historically, it could be public pension plans,
could be college foundations and endowments, healthcare institutions, sovereign wealth
funds, insurance companies, high net worth individuals, who are all looking to deploy
a portion of their balance sheet or portion of the assets that they have under management
into alternative investments. And so it's important that you have someone within the
firm or the leadership of the firm that begins establishing relationships with these
groups, helping them understand and identify who you are, what you do, why you're
differentiated in the market, how what your product is going to be different than
other things that they have, why you're better positioned in this market to take advantage
of the opportunity set, and create value for your investors. You know, your what you're
selling to them, ultimately, is a 10 year illiquid investment, it's not you're not
selling them public equities that they can trade in and out of, if you make it, they
make a determination, they don't want to be with you anymore, they can't trade out
of it the next day, there is a secondary market for it. But that takes time to sell,
sell at a discount. And sometimes it's not an avid not a very advantageous exit for
you. And so these people want to earn your trust. And they want to know that who they're
investing with, they're going to be in partnership with you for at least 10 years.
And most of these funds, even other 10 year funds, take 12 and 13 and 14 years to
ultimately wind down. And so it's very important that you you have one on one relationship
time with those individuals who are ultimately making the investment decision. So
what what begins with that, is you'll put together some type of pitch book or deck,
PowerPoint presentation that kind of outlines some of those things I just talked about
who you, who you are, what your investment strategy is, what differentiates you against
your competition? Why, what is the market opportunity? What are the types of investments
you're going to make? Maybe some case studies of what you've done. And then most importantly,
what is your track record? What have you done in the history of your career, whether
if this is the first time you're creating a fund, or whether you've had multiple funds,
to go and demonstrate to that investor, that you have the experience, you have the
team that can go deliver the type of returns that you're advertising in your in your
pitch book. And so you take that pitch book, and then you'll begin calling investors
going out seeing them, you have an official legal document called a private private
placement memorandum, which outlines the investment thesis, and you have legal documents
surrounding it called a limited partnership agreement and subscription documents.
And then you have you go meet with an investor the first time, they're likely going
to engage in some form of due diligence, and you have to prepare, they will have a
lot of questions, it will require information, and you have to fulfill those data
request and help understand and shepherd them through the process. So at the end of
the day, they're going to have an investment committee, they're going to have trustees
likely they're going to have to answer to and so from determining what is their process,
what does it take for them to get to a decision? But also importantly, what is a timetable?
How long does it take someone to get from an introductory meeting, to ultimately making
a decision. That's vastly different from a family office who has a sole decision maker,
to a large public pension who has, who doesn't move at the same rate that a family
office could move. It could be a six to nine month process with the state of California
and the state of Florida and state of Arkansas, very different than dealing with someone
who invest money for the Walton family as an example.
Matt Waller 9:07
Let's take a couple of examples, a University Endowment Foundation, how do you contact
the right people? How do you find them? How do you develop a relationship with them
and approach them?
Chuck Bauer 9:21
Certainly, yeah, it's definitely evolved over the I've been doing this for 17 years
now. So it's evolved over 17 years. Certainly technology has helped immensely. There
are databases that you can purchase, online databases that are services that call
the University of Arkansas and find out what they're interested in who the people
are that work there who covers what asset classes. And so that's probably the biggest
help is to be able to go out and utilize a database to figure out who's the right
person to call. Secondarily they're public. You know, anything that's public, a public
university, public pension plans, most of them are required by state law to have a
lot of that that information online. And so you can go pull public records to determine
who to call.
Matt Waller 10:09
And I would guess since you've been doing this for 17 years, you probably know a lot
of these people.
Chuck Bauer 10:15
Absolutely, yeah. So, you know, a big part of business school, a big part of the education
you gain not is not just within the classroom, but it's learning how to network, learning
how to communicate, learning how to build relationships with people within the business
school today, that will benefit you for life. And that is understanding that a lot
of the people that I talked to today, ultimately come from referrals, or determining,
hey, I need to get, I need to find somebody at the University of Arkansas to talk
to who might I know that is connected to that person that could facilitate an introduction
for me. Because we know in our personal lives, if your friend calls you and ask you,
Hey, will you take a phone call from my friend, you're much more willing to take accept
that phone call than if some someone cold calls you, you may likely ignore it or never
respond to it. So that's, that's a critical networking, and building relationships
that you can then lean on throughout your career is a critical component of the success
in this role.
Matt Waller 11:19
And in so many roles, I know many of our most successful alumni, and I would think
that almost all of them are quite good at developing relationships and maintaining
relationships. And you know, it's more than just meeting someone. It's learning how
to relate to them, and then stay in contact. It takes a lot of work, doesn't it?
Chuck Bauer 11:42
Yes. Takes a lot of work. One's, communications key, following up on what you said,
you're going to do, delivering on what you said you're going to do is key if someone
asks you for information, and what you have to determine how do I remember how to
do that? Do I need to write that down? Can I remember it in my head? When do I need
to follow up? How often do I follow up without becoming a pest to them? All of those
things are critical. And then over time, you'll learn that it's, you'll learn things
about that person, you'll want it then the next time you communicate with them, ask
them what was important in that last meeting, talk about your family, talk about their
family, those things that can relate to you. And the most important part of I've learned
probably my 17 years, as I've matured and my career's evolved, is to become a good
listener. And I will tell you, most of the times I meet somebody for the first time
95%, if I'm going to talk about EnCap, a meeting for EnCap. The first time I've met
somebody, my goal is for 95% of the conversation not to be about EnCap. I want to
learn about that I want to learn about their program, I want to learn about the institution,
I want to learn about that person. So I can understand what their needs are, what
they're trying to come to accomplish within their end their institution, and how we
might complement that. And the EnCap stuff can come like if I'm successful in that
first meeting, then I'm definitely gonna get the second meeting where we can spend
time talking about EnCap.
Matt Waller 13:13
You know, that's true in all kinds of sales as well. And even in interviewing for
jobs. You know, a lot of times I think, when people are interviewing for jobs, they
want to just spill everything out in terms of what they're good at what they've accomplished.
But, you know, a lot of times, you're better off asking questions and learning about
the person interviewing you. Sometimes they will hire you based on they'll talk themselves
into it in some cases. So when you're raising funds like this, from, say, a big pension,
public pension, versus a home office to your point, the processes take different lengths
of time. And I would imagine that you have to do a lot of nurturing of the process
for something like a large pension fund that is has more bureaucracy to deal with
more policies and even state laws, in some cases, regulations. So those are two very
different situations. How do you manage them differently? What do you do?
Chuck Bauer 14:24
Yeah, part of it is, as you suggest, you really have to understand their process.
You can't you need to understand, and I will tell you, in many cases when dealing
with an entity or an organization that's going to move slower or has more bureaucracy
has more steps that they have to get to through an approval process. Many times it's
let's go set a date, a goal of when we're going to be finished. And then let's work
backwards and create some key milestones and I'm talking about if you've gotten to
the point where you know that that individual that you're working with at that institution
is going to move forward, going to engage in diligence, they're going to take this
forward with a with a goal towards committing capital to the fund you're raising,
then let's go say that you want to be finished by October the 15th. What are the key
milestones that we need to hit and so that we can make sure that we're on target to
hit October the 15th. And the reason I say that is, you know, at some of these institutions,
the legal side, so you've gotten an official commitment out of a board of trustees
at a public pension plan, well some of there, there may be a legal review, that takes
three or four months. So if you know, you have to have this by October, the 15th.
And you know, you better be through committee by June the 30th, or July the 15th,
or you're not going to hit that, that target. Now, family office, as we just discussed,
you could go sit down with the principal, have a cup of coffee. And as you even like
you were talking about an end job, it's almost like a job interview. Right? If that
person trust you, they believe in the sector you're investing in, they may, they may
make a commitment on the spot. And they could turn legal documents in, in two days.
You know, and so it's really, it's really the key is understanding the process that
the people that you're working with have to go through. Also recognizing and something
that I that I have to continue to remind myself every day is the stuff I'm calling
them about isn't I'm not the only person they're working on, I'm not the only person
they're talking to. And so they're being torn in 20, 30, 40 different directions on
a daily basis. So there's you need to learn to be patient, and guide them and help
them and determine what are some steps, things that I can do to help alleviate any
challenges you're having getting the work accomplished. As an example, you know, this
person may have to write in an investment committee memo. And they may be getting
the time to dedicate to writing the investment memo may be challenging for them. So
maybe you can send them some examples that they can cut and paste certain portions
of that will help them you know, make that an easier process for them. So there's
certain things that you can help along the way, can't write it for him, obviously,
but you can help provide them some guidance on.
Matt Waller 17:15
Back to the large public pension fund, in addition to being a good relationship builder,
a good listener, you've got to be a good project manager in that case, it sounds like.
And there's lots of tools to help with project management, you were talking about
if they have a deadline and a certain point, they may need to be through some other
milestone before they get to that point. You have to think about the milestones and
the key events that need to occur, and tasks that need to be done. How long will those
tasks take? That sounds fairly complicated with some of these funds and I would imagine
many of them have different rules and regulations. So you have to adjust your project,
I'm calling it a project, based on the funds. So that takes a lot more time. And so
I'm thinking about it from a ROI perspective. You know, if you can get a family office
and, you know, make a decision more quickly, that could be a higher ROI on your time.
But on the other hand, the big public pension funds have more money usually.
Chuck Bauer 18:31
Matter scale as well, right. So big public pension could write 100 to $300 million
commitment, family office might write a five to $10 million commitment. So it's also
an allocation of time, allocation of resources. And really, the what I love about
what I do in the role that I play is it really touches upon many of the disciplines
within the business school. We're not, we're not one discipline focus. So there's
a huge component of my job that's communications. It's a huge component of sales and
marketing. But there is project management. There's, you've got to understand the
business, the law, in many cases, the regulations, the rules, you have to operate
by, back to your point you you know, there are some people that want to be go have
dinner, like they would prefer to have that conversation in a social setting, that
initial conversation, in social setting a family office or someone like that. They're
comfortable in that environment. Well, there are a lot of people that work for a public
university or a public pension, that have rules that prohibit them from even accepting
a bottle of water in your office, or a cup of coffee. And so you have to understand
that regulation. You have to understand if you want to do business in the State of
California, you'd have to go register as a lobbyist. If you want to do business in
LA, you have to go register as a lobbyist in the city of Los Angeles. So there's there
are just so many dynamics around that entire role that it's really interesting. I'm
interesting to see how many portions of the business school and what you learned in
business school you actually now applying in that role.
Matt Waller 20:08
At what point did you realize this would be a strength of yours to manage something
like this?
Chuck Bauer 20:14
Yeah, well, interestingly, I began my career in politics. So I was a political science
major, graduated from TCU in 1994, immediately went to work for a gentleman running
for Congress, and knew that I, kind of my base skill set was relationship development,
I knew I could communicate, I was pretty natural at developing relationships with
people. And so I became, spent 11 years working for the Congressman, speaking at Rotary
Clubs, Chambers of Commerce on his behalf, cutting ribbons and getting to know people
in the district. But then I identified that this was there was a role of raising capital,
in financial firms, that I didn't really at that, until that point, I didn't realize
the role existed. And so I put, I correlated the fact that what I do for the congressman,
and being his person in the district, and and being out, kind of in front of him being
his flagbearer, I guess, carrying his story in the district, and being the flagbearer
for a financial firm and telling their story, rather than but not in a congressional
district, but around the world, to just a different audience was very similar actually,
and the process of raising capital was similar to the process of running for office.
And so I put those two together. And some people said, you know what, you need to
go back to business school. So I went back and got my MBA, and then ultimately found
a job with a firm in Dallas. And I've been doing that for 17 years.
Matt Waller 21:50
It's amazing how many people really pivot through an MBA. MBAs are a great way to
pivot into business. So it seems to me, and I'm no expert on this, but it seems to
me that the number of family offices has increased dramatically over the past 30 years.
Is that, have you notice that, is that true?
Chuck Bauer 22:16
Yes. Yeah, they're every day, we see more and more family offices that are becoming
interested in alternative investments, particularly.
Matt Waller 22:27
So there's probably is there a database out there for family offices? Or how do you
find them.
Chuck Bauer 22:33
They're, they're trickier. That's a trickier universe to uncover. A lot of them don't
want to be identified. A lot of them want to do direct deals, they don't want to invest
in funds. A lot of them if you think about the, the genesis of their wealth in most
cases, it's an entrepreneur that took risk and built a business and sold it to someone
and created a generational amount of wealth that now he or she needs to manage. And
they want to create capital preservation and then wealth, create continued wealth
creation. There is a database out there that you that we utilize, that does a really
nice job of uncovering family offices. But typically, that is a place where networking
and word of mouth referrals is going to be the key to success. Because once they,
you know, if they've done business with you, they like what you've done, then they'll
they'll want to make sure their friends have an opportunity to or people that they've
done deals with will have an opportunity to look at what you're doing as well.
Matt Waller 23:34
Well Chuck, thank you so much for taking time to visit with us about fundraising for
alternative investments. I'm sure there's many students listening that have not really
thought about that as an option, but they're probably geared towards that naturally,
and others that might be interested in it after listening to this. So I really appreciate
you explaining this.
Chuck Bauer 23:56
Thanks, glad to be here. I think you're gonna be stuck with me for four more years.
So anytime you need me to come to campus or our students or anybody that wants to
learn more about the role that investor relations and fundraising plays within the
business community, on the private investment side, very happy to spend more time
helping the Walton School of Business.
Matt Waller 24:19
On behalf of the Sam M. Walton College of Business, I want to thank everyone for spending
time with us for another engaging conversation. You can subscribe by going to your
favorite podcast service and searching Be Epic B E E P I C
Matthew A. Waller is dean emeritus of the Sam M. Walton College of Business and professor of supply
chain management. His work as a professor, researcher, and consultant is synergistic,
blending academic research with practical insights from industry experience. This
continuous cycle of learning and application makes his work more effective, relevant,
and impactful.His goals include contributing to academia through high-quality research and publications,
cultivating the next generation of professionals through excellent teaching, and creating
value for the organizations he consults by optimizing their strategy and investments.
