#24 – The Family Office CIO

Beth Lilly is a value investor with a specialism in small caps. She is highly successful, manages money for a billionaire family yet she drives a 12 year old car. She explains why.


Beth Lilly is a highly successful value investor and an amazing woman. She has set up two asset management firms, worked with and learned from some of the most famous and some of the most successful value investors in the world, and now runs money for the multi-billion Pohlad family in Minnesota.

We discuss the power of compounding, Beth’s research process and how she conducts company meetings. We disagree on the attractiveness of the auto dealership industry, and Beth explains how she approaches the management of inter-generational wealth, how she decides much cash to hold and we debate private equity.


From an early age, Beth Lilly always wanted to be an investor. Her grandparents gave her 7 shares in local company 3M, value $70, which she still holds today, value $70,000. She has had a varied and interesting career working with some great investors. She started outat Goldman Sachs, but wanted to invest herself so moved to the Fireman’s Fund, working for Bob Bruce, an outstanding but less well known investor. She recalls a younger Warren Buffett stopping by for lunch! Beth then set up on her own back in St Paul Minnesota with two partners and sold that firm to Mario Gabelli. She then set up on her own before joining the Pohlad Companies as CIO, which seem to be her perfect job.

The Pohlad Companies

With an initial focus in banking, the Pohlad Companies organisation now spans several sectors: commercial real estate; automotive; robotic automation, engineering and material handling; sports and entertainment; including the Major League Baseball franchise the Minnesota Twins; and private investing. More than 2,000 professionals are employed in more than 20 companies operating across the United States. Marquette Companies serves as the holding company for many of the operating units. The family also have a charitable foundation which focuses on housing stability for families and youth in Minneapolis-Saint Paul.

The patriarch had 3 sons who are all involved in the family office and the third generation has seven children. The brothers were Twin Cities Business magazine’s 2022 People of the Year, and were honoured for their commitments to alleviate poverty, bolster racial justice, and rejuvenate downtown Minneapolis.

Robert Pohlad is a non-executive director of Pepsico, having previously been responsible for the family-owned Pepsi bottler which was the second largest in the world with a turnover of c.$4.5bn in 2007. He is also a director of several of the family companies including some of the car dealerships.

Bill Pohlad is a film producer (including 12 years a Slave and Brokeback Mountain) and he directed the Beach Boys myopic. River Road Entertainment is part of the family business.

Jim Pohlad is a director of the Minnesota Twins basketball team which is owned by the family. They also have a stake in the Minnesota MLS soccer team.

The family has a number fo private equity investments where it holds minority stakes. Sectors represented include consumer products, insurance, food and drink, logistics and distribution, healthcare, manufacturing, and tech, including an investment in Spotify now exited.

Their website.

Some Takeaways

Auto dealerships

The family, like many families in the US, as Beth pointed out owns a number of auto dealerships which made for an interesting discussion. Steve is concerned about the EV threat which poses a risk to inter-generational long term value because:

  • EVs don’t have many moving parts and need less maintenance. Parts and service are probably 30% of a dealership’s revenue, he guesses.
  • This isn’t a high margin activity because new and used car sales are highly competitive, commodity businesses and median margins today are 5% vs 4% 5 years ago. Lose the maintenance business and they will be much less profitable.
  • New EV manufacturers are cutting out the intermediary. Even if the legacy auto makers continue in their current mode of business, the new entrants – Tesla, Rivian etc – will shrink dealers’ TAM.

Beth is bullish as they are highly cash generative, stable franchises because of the OEM relationship and attractively valued. And she pointed out that with 15m cars being sold each year, there will be plenty of service revenue for a long long time to come.

We should also recognise that it’s a very fragmented industry with a stock like Lithia Motors, with a market cap of $8bn, having just 300 outlets out of 17k in the US. The largest players may have 1% or less market share making acquisition led growth attractive. And it’s a huge, $2tn industry, one of the largest retail segments anywhere.

Steve acknowledges that the EV threat will take time to play out, but is concerned that it’s difficult to know when the market’s discounting mechanism will get concerned about the long term risk to margins.

Beth’s Process

Beth has refined her research process over decades of investment experience. She places great emphasis on meeting management and visiting their operations as well as HQ. She cited two mistakes she made many years ago from not interpreting these signals as well as she should have and they make for great lessons to learn.

Tips for Young Potential Analysts

Beth recommended a book, see below, but had three wonderful tips for a young woman thinking of becoming an analyst, but which Steve himself has already adopted:

  1. Carry a notebook at all times.
  2. Write thank-you letters.
  3. Believe in yourself.

She expresses it much more eloquently – listen to the end of the show.

ABOUT Beth Lilly

Elizabeth M. Lilly is Chief Investment Officer and Executive Vice President for The Pohlad Companies and Pohlad Companies, LLC. She oversees the public and private investments for the Pohlad family and provides leadership and management of their investment team.

Beth began her career with Goldman Sachs in 1985 in New York. In 1988, Beth joined Fund American Companies in Greenwich Connecticut where she worked as an analyst learning the merits of Value Investing. In 1997, she co-founded Woodland Partners in Minneapolis which focused on investing in small capitalization equities. In 2002, Woodland Partners was acquired by GAMCO Investors where she went on to serve as a Senior Vice President and Portfolio Manager of the $1.4 billion Teton Westwood Mighty Mites Fund and as a member of the value portfolio management team. In 2017, Beth founded Crocus Hill Partners to focus on investments in small and micro capitalization equities.

Beth received her BA in Economics from Hobart/William Smith College where she graduated with High Honors. She received her CFA designation in 1989. Beth currently serves on the Board of Directors for Apogee Enterprises and The Ordway Center for the Performing Arts. She is also a member of the Investment Committee of the University of Minnesota Endowment. Beth and her family live in St. Paul.



Beth recommended The Outsiders by Will Thorndike which was even recommended by Warren Buffett who said “An outstanding book about CEOs who excelled at capital allocation.”


Steve met Beth in Omaha. Mario Gabelli sponsors a dinner in aid of Columbia University and Beth was one of the speakers. Steve went up afterwards and charmed her into doing the podcast.


00:01 – Investing journey and women investors

09:17 – Career path and mentors

18:06 – Importance of relationships in investing

37:19 – Private equity and car dealerships

51:18 – Consistency and discipline in investing

01:00:42 – Importance of communication and gratitude




An AI Generated transcript follows which only has the lightest of edits but may be helpful. 

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain. We hope you enjoy this and every episode.


DISCLAIMER: Behind the balance sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast which is aired for your education and entertainment. Only nothing in this podcast should be construed as investment advice or relied upon for investment decisions. Always do your own research.

Charity Advert


STEPHEN CLAPHAM: My Analyst Academy course is a flagship course in my online school. It’s been really popular with hundreds of students and post COVID. We held physical drinks in London, which was a great way that lots of us could get together in person.

STEPHEN CLAPHAM: So I repeated that exercise a few weeks ago and one of my students, Amy came and told me that the course had changed her life and she wanted to thank me in person. Well, you can imagine. I was of course, incredibly touched. I have far too few women students and of course, I want to help people, but I had literally no conception that my teaching could have such an impact.

STEPHEN CLAPHAM: And here’s the thing, Amy is a single mother and a woman of color and her child, Kiara is nine and has spastic cerebral palsy, which is why I’m telling you this now because Kiara is blind and in a wheelchair and she goes to Bedford School, which is a special needs school in Kingston outside London.

STEPHEN CLAPHAM: And they’re fundraising for an additional in a walk machine, this attaches to the body and helps the child sit, stand and move more comfortably. It aids their muscle development and there’s scientific evidence that it helps encourage normal bone growth. That machine is £46,000 or $60,000. If you’d like to help make a donation, please visit their website.

STEPHEN CLAPHAM: The shortcut is bit spot ly bit forward slash BT BS for behind the balance sheet. Charity one, the number one. So that’s bit forward slash BT BS charity one and make a donation help Kiara and kids like her. Thank you, Beth Lily is a highly successful value investor and an amazing woman.



STEPHEN CLAPHAM: She set up not one but two asset management firms worked with and learned from some of the most famous and some of the most successful value investors in the world and now runs money for the Pollard family in Minnesota. They’re worth several billion and Beth looks after their investments in public equities, private equity and private equity funds.

STEPHEN CLAPHAM: Beth has a wealth of experience and shares some of her tricks of the trade. My favorite was carry a notebook at all times. Beth tells us how she got interested in investing when her grandparents gave her shares in 3M, a local company. Those shares were worth $70 when she was a child and she still holds them. But the value today is 70,000 such is the power of compounding. Beth tells us how she shares her love of investing with her three kids, explains why she drives a 12 year old car and talks about running money for a family who think in generations and controversially, we discuss whether women make better investors than men.

STEPHEN CLAPHAM: We disagree on the quality of the auto dealership business. I explain why I like Minneapolis St Paul, Beth’s hometown and we dis private credit. I think this episode is something for everyone and I hope you enjoy our conversation as much as I did.

STEPHEN CLAPHAM: Beth. Welcome to the podcast. I’m so excited to talk to you. Now, we always ask the same question at the start. Did you always want to be an investor when you were a teenager?

BETH LILLY: Well, first of all, Steve, thank you for inviting me to be on the podcast.

STEPHEN CLAPHAM: Well, I’m thrilled that you said yes.

BETH LILLY: And it was wonderful to meet you in Omaha. Yeah.

STEPHEN CLAPHAM: It was great fun.

BETH LILLY: So, you know, I, I was thinking about that this morning and yes, the answer is yes, I started, I think I would, I, I will trace it to and I tell the story when I go talk to the students at Columbia Business School every year.

BETH LILLY: Which is I, when I was a young girl, my parent, my grandparents gave me seven shares of three M stock and I think it was worth $70. My grandparents. Ok, seven shares. I think stock was like $10 and that $70 has now turned into seven thou $70,000. Ok? And I held on to it.

BETH LILLY: But, but these annual reports would come home and my, my mom would sit down with me and say, ok, your, your grandparents gave you this stock and here’s, here’s an annual report. And, and then my mom became involved. This is when the Beardstown ladies were big, you know, the beards, those ladies that used to gather in their, in their kitchens and investment money.

BETH LILLY: So my mom had started an investment club with her friends. And so I just was always fascinated with the stock market and businesses. And then I heard a story that and I was also thinking about this this morning.

BETH LILLY: So during the depression, the three M employees would pay their bar bills at the end of a long day, they’d go to the bar and they pay their bills with three M stock. Yeah. So, you know, at, at the end of the month, they would pay their bills, they would give the, they didn’t, the stock wasn’t worth a whole lot.

BETH LILLY: And this is in the thirties, they would during the depression, they would, you know, pay up their bills with three M stock. And so you have all these millionaires on the east side of Saint Paul. And my mom and dad told me this story and I was like, that is unbelievable.

BETH LILLY: So wait a second, they, they paid their bills and now you’ve got all these three MS, three young people, the three people that have paid their buy bills. And now you’ve got all these residents on the east side of Saint Paul, which is kind of a considered not a, a AAA upper mid, it was just a middle class neighborhood with all these people that became millionaires from the stock.

BETH LILLY: And so I was like, how does that work? So I just became fascinated just with the whole, how you buy something, how business works, boards of your directors, products, the whole thing. And so I just have been fascinated with it.

STEPHEN CLAPHAM: That’d be unusual for a young girl.

BETH LILLY: Yeah, go ahead. That’s the post it notes.

STEPHEN CLAPHAM: It’s amazing that it’s been so successful. I knew it was a Minneapolis and Fall company. I knew it was, I knew it’d be done very well, but I hadn’t realized it was quite that well. And you’ve still held those seven shares.

BETH LILLY: Those shares were, it was worth those seven shares were worth $70 and I held on to him and held on to them and now they’re worth $70,000 and that just shows you the power of compounding.

BETH LILLY: And to this day this lesson, I tell, I tell my kids, you know, we go on vacation and we’ll be driving in the car and I’ll be like, there’s a public company, there’s a public company. We were in Austin, Texas. And my son was like, fascinated looking at all the names on the buildings. He’s like, what about that company?

STEPHEN CLAPHAM: So I know that your children are interested in investing because of course I met your, your daughter. So did you give your kids shares when they were? What did you give them?

BETH LILLY: So that’s a very good question. We, I did not give them three. I’m stuck. I didn’t give them shares. What I did was I sat down and, and we, my, my spouse and I sat down and said to them, ok, here’s $5000. What would you like to buy? And they had to pitch various stocks? Oh, wow. How old were they?

BETH LILLY: They were, let me think about this. This was like five years ago. So they were 13 or 14 years old. So, one of my sons is very into video games and everything. So he bought Activision and Ubisoft and another son bought Beyond Meat and Boeing. So just really interesting. My daughter bought, I’m trying to think what she bought. She bought Lulu Lemon.

BETH LILLY: I mean, it was Starbucks was very aligned with what their interests were and that was the whole point which was, you know, it wasn’t about, ok, what’s the pe on this company? But it was about, all right, here’s the annual report and what, you know, what, what are you interested in? And here’s the annual report and read about it and then let’s see how it does.

STEPHEN CLAPHAM: And so I imagine in your household. There’s quite a competitive spirit.

STEPHEN CLAPHAM: Did he? Did he, did he argue? Did he? Oh, I’m doing better than you. I mean, do you have an annual review?

BETH LILLY: Well, that’s really funny. No, we don’t have an annual review but the latest discussion and you’ll Steve, you’ll appreciate this is that these, these accounts were set up as, you know, because they were minors. And now one of my sons has turned 19 and the twins have turned 18.

BETH LILLY: So now they’re like, well, we’re, we’re, we’re old enough. We get access to our accounts. Turn over your fidelity account. We get our, we get our fidelity accounts because we’re 18, we’re adults. So I said you can have access to your fidelity accounts. You just can’t sell the stocks.


BETH LILLY: Because I’m like, that’s the power of compounding, you know, that’s, and that’s what one of my big f and I learned that very early on. Don’t worry about, you know, it’s like taxes are gonna kill you. That’s why Buffett has. I mean, he’s just a genius in that way, but do not sell the stocks and just let them be. And it’s the power of compounding. And, you know, so.

STEPHEN CLAPHAM: It’s interesting because here we’ve got these, they call them I it’s a tax free wrapper. And so you get an allowance, you can invest each year within this wrapper and they’ve now brought out a kids version of that. So my kids have a children’s answer.

STEPHEN CLAPHAM: But my kids think I’m stupid. Right. They think, you know, the, the last thing they want to do is get interested in anything I’m interested in. So I couldn’t, you know, I said, you know, why don’t we choose a stock that I won’t, I won’t repeat what my younger child said because this is a, this is a, a clean show without explicit language, but you can imagine it wasn’t.

STEPHEN CLAPHAM: But, maybe when you come to London, we’ll get you to explain this to, to my, to my kids. Now you, your career has been very interesting. But you started off, you traveled in Europe, which must have been quite a thing back then. For a young woman, you got a job at Goldman and then you moved into fund management.

STEPHEN CLAPHAM: I was just gonna ask you. So why you move? Because the South Side I think is quite a good training ground. And I had this argument with another newsletter, writer, another chap in subs because I wrote a letter about a Substack about why I thought the South Side was a good place to start because you get the input from the by side and you’re very, it’s learning in public.

STEPHEN CLAPHAM: And so you learn very painfully, very quickly. Whereas in the by side, I think it, I mean, I think ultimately, I, I enjoyed my time in the by side more, but I think I was better, I’m better analyst because I went through the South Side process but why did you go in another direction?

BETH LILLY: That’s a very good question.

STEPHEN CLAPHAM: So, in the same direction.

BETH LILLY: Yeah. Yeah. It, but just a different, it’s a different path in this.

BETH LILLY: So, so I was part of this, you know, Goldman, they, it’s this program where after two or 2.5 years, they basically say to you, ok. You know, look, you, you either have great promise, please go back and get your MB A and there’ll be a spot here for you or you know what your time is up, go do something different.

BETH LILLY: And I was trying to figure out what to do. Do I go get my MB A do I and then come back to Goldman, do I? You know, but what I realized Steve was, and I had this great, wonderful mentor Todd Bergman, who, who has since passed away, he was an international oil analyst, you know, and he was a great training.

BETH LILLY: He provided a great training grant. I realized why would I wanna sit and convince people to buy stocks as opposed to being actually put the money to work on my own, do all my own research and then buy them as opposed to trying to convince people to buy them.

BETH LILLY: And so I realized at that point, you know, the, the importance of getting access to management because at Goldman Sachs, you got access to everybody. So the access to management and the importance of talking to management teams, but then being able to use that information to make money on it as opposed to trying to convince other people to make money on it.

BETH LILLY: And so as that, trying to figure out my next step, I became friends with an international oil analyst who was at first Boston Bill Randall, and he had a friend who was going to run the insurance assets for Fireman’s Fund and Fireman’s Fund was being spun out from American Express and Fireman’s Fund was going to be managed by Jack Byrne.

BETH LILLY: And Jack Byrne is famous for running Geico turning it around and selling it to Buffett. And so American Express had said to Jack Byrne, would you please, you know, come and run this spinoff for us? And Jack said, sure, I’ll run the spinoff.

BETH LILLY: And Jack turned to his friend Warren Buffett and said, jeez, you know, I need somebody to run my insurance, the insurance portfolio. Who, who do you recommend? And Buffett said there’s two guys, but the first guy won’t come and take the job. So here’s the second guy and he said, no, I’m not the first guy.

BETH LILLY: And the first guy was this fellow named Bob Bruce. And so Bill introduced me to, to, to Bob because I was talking to Bill and Bill is like, what do you want to do? And I said, I wanna manage money. He said, oh, I got this friend who’s doing this really interesting thing.

BETH LILLY: So long story short, I went to go work for Bob Bruce up in Greenwich, Connecticut before it was a outfit for hedge funds. And Bob that hired four of us or five of us and trained us and we read the intelligent investor and met once a week, he took us through, I mean, he trained us on analysis and how to analyze companies and truly how to be a value investor.

BETH LILLY: And oh, by the way, Buffett came in and had lunch with us. So at a very young age of 24 years old, I was learning from arguably one of the best value investors who’s very well, who’s not very well known, which is Bob Bruce. And Buffett would come in and Jack Byrne would talk to us about the insurance a business.

BETH LILLY: And so I, I made this transition, which people were great. They were like, you’re going, where to work with who as opposed to going to business school or working at a more prestigious firm. And I just, it felt like the right decision and it’s led way to this incredible career.

STEPHEN CLAPHAM: It’s very astute of you to have made that decision at such a young age who canceled you? Did you get advice.

BETH LILLY: Or you know, I spent, that’s a very good question. Bob Bruce gave me three people that I could do reference checks on him. He’s like, you know, you’re 24 years old. You probably think this is the craziest decision you’re gonna ever, ever make.

BETH LILLY: Here’s three people you should call. So I called these three people and one of them was John Freud, who was Warren Buffett’s traitor and John, it’s Allman brothers and I had this long conversation with John to this day is he is a dear friend of mine. He lives in Chicago.

BETH LILLY: And he was like, this opportunity is unbelievable that you’re being offered. You don’t quite appreciate it. But this opportunity to go work with Bob who is at Cumberland associates and to really learn the business and train and then get access to Buffett and all this kind of stuff is unbelievable. And I also turned to my parents, my mom was like, you know, to that own self be true.

BETH LILLY: You have to listen to your instincts and your, if your instincts are telling you to do, do this as opposed to going to fidelity or another big firm, then you know, and what do you have to lose at 24 years old? You take a risk and it doesn’t work out. You could always figure something else out to do.

STEPHEN CLAPHAM: Yeah, I mean, it’s quite something to leave Goldman Sachs though, right? I mean, quite a brave decision. So what made you go back to Minneapolis, ST Paul now? You don’t know.

STEPHEN CLAPHAM: But I’ve been having a dialogue with sue your secretary and I was explaining that I have been to Minneapolis, ST Paul many Times and, I was telling you that I think the French fries at the fairgrounds are the best French fries in the world because I remember them dearly, but it’s not an obvious place for an investor and it’s hot in the summer, cold in the winter. You could have gone anywhere. What, what was the pool?

BETH LILLY: You know, it was a, it was a quality of life issue.

BETH LILLY: You know, I was, I was reverse commuting from New York up to Greenwich, Connecticut. And you know, back then Greenwich is not what it is today. You know, it’s a vibrant community and back then people would reverse commuting into the city and it was, it, there weren’t a lot of young people up there.

BETH LILLY: And so it was a reverse commute and I just, I was ready to return home to the Twin Cities. I, I, you know, I, I just knew and I always had this dream to have my own investment firm. And I was like, are you I, I, well, I, at 29 years old, so this is where this all started.

BETH LILLY: So I had this notebook that I talk about which to this day I now still carry around, you know, you can get these at Staples Or Office Depot or whatever for $2. But I had a notebook that I carried around because of all the wonderful people that Bob Bruce and, and that I had met through working at a Fireman’s Fund and I carried this notebook around. If I have my own firm one day, what will it look like?

BETH LILLY: And I, the characteristics of the philosophy, people I admired or admired people that, that, that were successful and why were they successful? And people that I really, that I had, that I thought were at some point would be people I could tap into not to get money from, to manage.

BETH LILLY: But just in terms of this is my dream and you know, what would you, you know, just people that were on this path that had done what I was hoping to do. So I carried this notebook around and I figured, you know, I probably could go back to the Twin Cities because born and raised there and execute on this dream much easier than on the East Coast because I had a much deeper network in the Twin Cities.

BETH LILLY: And you know what, Warren Buffett lived in Omaha Nebraska and he would, he did it and I was like, you know what, you know, and today any people work from all over. But I figured if he did it from Omaha Nebraska, I could, I could do this from Minneapolis.

STEPHEN CLAPHAM: Now, I’m just for the benefit of the American listeners, which actually are the majority of the list that are the biggest community of listeners to the podcast. If you are going to buy a notebook, like Beth’s, please buy it from office depo because David Einhorn recommended that stock. And, I think that would be better than buying it from staples.

STEPHEN CLAPHAM: Not that I’m familiar particularly, but I had Chris, a guy called Chris on the podcast who runs the Hill Family office. And I had him on the podcast because I read some stuff he’d written and I thought this guy is really smart and it was a really popular show. But we talked at length about, he lives in North Carolina in the Blue Ridge Mountains.

STEPHEN CLAPHAM: And he said, this gives him a massive advantage. And I didn’t agree with him because I said, look, I’ve done this job and I was based in London and I did global investing and any big company that wants to be in the capital markets comes through London. And so I could see any company in the world if I just sat there long enough. And, if I’d been in, I don’t even know where.

STEPHEN CLAPHAM: No, I think if I’d been there, nobody’s coming there right now. I’m sure a few companies come to ST Paul. But what do you think about this about being detached from the crowd versus being in the thick of it and, you know, being able to go to conferences that are just to get on the subway and go to one and see more companies.

STEPHEN CLAPHAM: It can’t be, it’s not a one way bet. I mean, what are the disadvantages of living in Saint Paul and from an investing point of view, I mean.

BETH LILLY: You know, I will tell you that the disadvantages are, yes, you don’t have access to all that. Now, of course, the pandemic has completely changed that now everything is virtual, right? A lot is virtual.

STEPHEN CLAPHAM: But, but, but, but, but I mean, there’s a big difference between talking to a chief executive, face to face and talking to him in Zoom. I can’t tell, I, if, if we were sitting in the same room and you were lying to me, I would be able to tell from your body language on Zoom. I would find it much more difficult.

BETH LILLY: Yeah. Now, let me, yes. Now the interesting thing is is that, you know, and, and we’ll get into this but for the types of public companies that we’re investing in here at, we, we run a internally managed portfolio.

BETH LILLY: A lot of them don’t go to New York for conferences.

BETH LILLY: So the, you know, does it make a difference if the difference is we’re going to their headquarters to meet with them where you’re looking into the whites of their eyes and you’re seeing the interact interaction between the CEO and the CFO you know, so and 15 or 20 minutes at a com at a conference when it’s speed dating and they’re, they’ve got a lot of demands on their time versus two hours in their headquarters.

BETH LILLY: There’s no comparison.

STEPHEN CLAPHAM: Oh, no, no. Sure. And I, I take that. So, I mean, you, you like meeting management, that’s a big part of your process.

BETH LILLY: Very, very, very important part of the process. I mean, it as important as all the analytical work that we do behind the scenes in terms of the, the 10-K, the 10-Q, the, the proxy statement, everything really important.

STEPHEN CLAPHAM: And do you have a, a sort of standard procedure so that if you’re seeing a company for the first time, you’ve got a standard procedure and if you’re seeing a company, a repeat visit, you’ve got standard procedure. How do you, how do you approach?

STEPHEN CLAPHAM: So let’s say I was a, I mean, obviously nobody would let me be the chief executive of anything. But let’s say I was the chief executive of a company. You know, how would you open, how would you get me to feel relaxed and, and be honest and open with you? You have techniques.

BETH LILLY: Yeah. So for the most part, these companies that we’re investing in are a billion market and market cap below. So they’re not well covered by Wall Street. The story is not fully understand there. They might be, there might be one or two analysts that cover it or or not none. And so it starts with a thorough preparation before we even call the company to really understand the business that they’re in.

BETH LILLY: What is it, what is it it worth? So you do a deep analysis. Five years back in terms of the ca in income statement, cash flow balance sheet, understanding the business, all the drivers, everything really get your hands around it and then determine what you think the company is worth. And that, and that process it takes hours, ok?

BETH LILLY: And then if you decide that it makes sense to really start to dig in more, then it might be a phone call with the company and then it’s like, ok, we wanna come see you and the process and, and the process of going to see them is not to gather information about how fast are they gonna grow and what are they gonna earn next quarter? The, the it, no, no.

BETH LILLY: Our process is, you know, what’s your strategic direction for this company? What’s this business gonna look like in 3 to 5 years? Because we tend to, we want to own things for the long term, right? We’re not trying to, taxes are very important to us.

BETH LILLY: And so, and it’s compounding and so we’re looking out and ideally what you want to do is own this something for a long, long, long, long time. Ok. So you know, how do you compensate the board? How do you compensate? Your management team are, are metrics tied to return on invested capital and improving margins or earnings per share.

BETH LILLY: And you know, you want to meet with the CEO in the CFO, you wanna walk through the plants when you walk when you meet with the CEO and the CFO at the same time, when you ask the CFO, a question, does the C CEO answer or does he let the C he or she let the CFO answer?

BETH LILLY: So there’s all these business questions, but there’s all these intangibles that are so important, Steve that you talk, just talked about in terms of face to face that are really important in terms of investing in companies and how, I mean, so let’s say you’ve invested in my company and how often would you come and see me, you know, for the most part, once a year, I would say, and see you once a year and then talk to you on the phone multiple Times a year and you build a dialogue up and, and these come and, and for the most part, we’ve got this deep database.

BETH LILLY: So, you know, we’ve, we’ve been following these companies for a long time and they, they, for the most part, know who we are and know who I am. And so when you pick up the phone, you know, and we’re not activists, that’s the other piece about this.

BETH LILLY: We don’t, but we don’t get in activist campaigns and try to get companies to do things. I mean, one of the many gifts that Mario Gabelli gave me was he does, he files 13 Ds but not because he wants to be an activist, but because he wants to engage in constructive dialogue about the businesses. And if he, if you file a 13 F, you can’t do that.

BETH LILLY: But if you file ad, you can make suggestions about board members business, how to run the business, things like that. But, but again, we’re not trying to tell them how to run their business. But given our years of experience, I think we can add value on the edges.

STEPHEN CLAPHAM: And you, you talked about walking around the shop floor. I mean, do you, do you always visit the operation? I mean, what happens if the, the HQ is not an operating base? Will you go to the plan?

BETH LILLY: Oh, yeah, yeah, absolutely. And you know, that’s, that’s been, you know, if I look back at two mistakes, you know, we, we all make mistakes in this business. If I look back at some of some of the biggest mistakes I’ve made is I didn’t pay attention to the red flags that the, that the operations showed me.

BETH LILLY: One was there was this mining equipment company many years ago called Manitowoc. And they talked about being an E VA company and very cost conscious and returns focused and all this kind of stuff.

BETH LILLY: And we went to go visit them in Milwaukee and they had the biggest fanciest headquarters I’ve ever seen and it was very inconsistent with the message they were, they were conveying and then there were other issues with how they calculated their E va and taking out items and not including everything.

BETH LILLY: And so I didn’t pitch in and then the other one was Samsonite. That company had come public and I went to go visit their factory. They were in Denver, Colorado. And the, the factory was a mess. I mean, it was a mess and I didn’t pay to, it was a mess.

BETH LILLY: There was inventory all over, it was just a mess and there were so many red flags and I didn’t pay attention. That’s the luggage company. Yeah. And they ended up, we got out and then I think they filed bankruptcy and then going through a reorg and all that kind.

STEPHEN CLAPHAM: Of stuff that this must be some time ago.

BETH LILLY: It was a long time ago. Yeah.

STEPHEN CLAPHAM: Well, it’s good that your mistakes are long, long in the past and, and good that you remember them.

BETH LILLY: So, oh, that’s, you know what? I learned my biggest lesson through my mistakes, not through the successes.

STEPHEN CLAPHAM: It’s always the, the, the same with every, every, every endeavor, but particularly with investing.

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STEPHEN CLAPHAM: No, I was going to ask you, we were talking about your career and then I got sidetracked with the meetings, but, you were a woman in back when it was quite difficult to be a woman in an investment in environment. And quite unusual. I mean, did you, what was it like being a woman in a man’s world or maybe, maybe that’s more a London thing. Maybe New York’s more equitable.

BETH LILLY: You know, that’s, that’s a very good question, Steve. I didn’t think very much about it. I, I honestly, I, I, it didn’t, you know, my mother, she was very involved in the community and she was on a, a public company board and I don’t say that because I can, yeah, I didn’t come from a privileged background by any stretch of the imagination, but I had a really strong role model.

BETH LILLY: And so I didn’t think very much about it and, and I had very supportive parents and I had this dream to go to Wall Street. And so I knew it was what I wanted to do.

BETH LILLY: And so it didn’t, it, it, I didn’t think too much about it and you know, that yes, there were Times when I felt like I was maybe I don’t know if the word is discriminated against or whatever the case may be. But, I didn’t think too much about it because I just had this dream.

STEPHEN CLAPHAM: Why do you think there aren’t more women investors because they, you’re better at investing? You know, I mean, I, I get terrible pushback when I say these make these generalities. But in my experience, women tend to be more cautious, more balanced, that much more risk averse.

STEPHEN CLAPHAM: And if you’re more risk averse, you know, not, not necessarily going to be a better investor, you wouldn’t have been a better investor in the last 10 years. But generally speaking, you, I find that, you know, women have been safer pairs of hands. Can I say that? Yeah.

BETH LILLY: Yeah, I think women are more patient, you know, they, they, they, I my experience is, is that you know, there’s less and, and I’ve read about this, there’s less ego involved in terms of decisions and it’s like, OK, if I make a bad decision, I’ll own up to it and then move on or, you know, instead of taking it on, like I’m a bad person or I’m a terrible, if there’s less ego involved, that’s my feeling.

BETH LILLY: And I would just say, you know, I think this is, there’s this perception Steve of this industry is demanding and it, it is a demanding industry. There’s no doubt about it. I mean, long hours and, but, but there’s a perception of you can’t have a balanced life.

BETH LILLY: And I will tell you that I have three children at home. And, you know, I would say that the wonderful thing about the investment business is it doesn’t matter what time of the day you’re reading a 10-K or a 10-Q or a proxy statement. And so, you know, you can be, you can be at the office until five or 5 30 go home and have your dinner with your kids and, and, and then put them to bed and then do your work.

BETH LILLY: And, and so there’s a, there’s just a perception of that. It’s more demanding than it is. And I think that yes, it’s demanding, but you can also work around that and I think the pandemic has been wonderful in that way. So it’s, yeah. So that’s, that’s, yeah.

STEPHEN CLAPHAM: I mean, the flexibility is certainly important thing. So you sold out to Mario Gabe and then you set up again on your own and then you joined the Pollard companies. What was the attraction? What, what, what was it like working with Mario? And then what was the attraction of, of the group?

BETH LILLY: So, I it was one of those moments in my intuition and I, I, I was working for Marion and I was like, you know, I started woodland partners with two gentlemen and then we sold it to Mario and it was that real desire to, can I really do this on my own. Can a woman go out and start a firm on a own and raise capital and not have to feel like she needs to have AAA man, right?

BETH LILLY: I mean, you know, to give her legitimacy. And so that dream of that notebook, you know, I still had that notebook, but this was OK, this is gonna be really be, let’s see if, if I can, I had this track record, I had all these relationships.

BETH LILLY: I had the credibility, I mean, the strong track record and I was like, I’m gonna try this. If I don’t try this, I will regret it. It’s that little thing. And I’m like, well, if it doesn’t work, I can always do something different. And I had a very supportive spouse and decided, ok, I’m gonna do this. And so I left Mariel and he was very wonderful.

BETH LILLY: I mean, you know, he, we, we departed on very good terms. He gave me my track record, which is, you know, very unusual. And I went out and I raised a couple $100 million.01 of the clients that I had raised money from was the Pole family. And I had known them since I had moved back to the Twin Cities because we had started the woodland partners and the offices, poet family offices were in the same building.

BETH LILLY: And so I would ride the elevator with Carl Poland, who was the patriarch, who was the, the founder and Mario was one of the largest shareholders in Pepsi Americas. And Bob Poland was running Pep Pepsi America. So after we sold to Mario, he said to me, we own a lot of stock in Pepsi Americas.

BETH LILLY: Get on the elevator and go upstairs and talk to Bob Poland about it. So Bob and I developed this relationship and friendship and all this kind of stuff and, and so, you know, I had started partners and they gave me capital to manage.

BETH LILLY: And so the cio was retiring and they called me up and after about a year into partners or a year and a half and said, you know, this is kind of a crazy phone call and I don’t know if you’d be interested, but our Coio is retiring and you manage a portion of our assets and we’re wondering if you’d be willing to come in and lead the investment team and be our chief investment officer.

BETH LILLY: So I spent, you know, a fair amount of time talking to him and, you know, it was one of those moments, Steve where you say, jeez, what fun, you know, kind of like this came out of left field and what a fun opportunity to be involved in all these different asset classes, still managing money, learn about this world of private equity that I did not have a lot of exposure to and work for this incredible family.

BETH LILLY: It was really, it was just one of those moments where I was like, it was a moment. I didn’t want to pass up just an opportunity and it was probably one of the best that and going to work for Bob Bruce were two of the best decisions I ever made.

STEPHEN CLAPHAM: What did you say to the people? I mean, what happened to the, the, the firm, the new firm that you just started 18 months ago?

BETH LILLY: And so I returned the capital to the partners and I called him up and I said, thank you very much. But I, I just want to let you know, I’ve been given this opportunity and this is really hard and I know you’ve entrusted me with your capital.

BETH LILLY: You know, the good news is I, and I don’t say this out of any arrogance, the money they gave me, I gave them back more than they had given me. So it’s not like they’ve lost money with me. And as a matter of fact, quite of few of them had done very pretty well. And were they.

STEPHEN CLAPHAM: Were they sympathetic? They were they understanding.

BETH LILLY: They were understanding and, and they were also very supportive. And as a matter of fact, one of the clients today, I had a pretty good relationship when, when I was managing capital.

BETH LILLY: Now we have a really good relationship and another family foundation out on the East Coast. I’m helping them out in a, as a, a volunteer position on their investment committee. So it’s led, made all these relationships that I didn’t expect to have.

STEPHEN CLAPHAM: So they, usually, when you part company with a fund manager it’s for bad reasons. It’s not, you know, so it’s kind of a, it’s kind of like a weird thing giving it.

BETH LILLY: Yeah. But you know what the good news is, I gave them back more money than they have given me. So, they were not upset and they understood.

STEPHEN CLAPHAM: And what’s it like managing money for a family? How is it different from running a fund? I mean, there must be having permanent capital, not having multiple clients, but having one client. I mean, you got to get on with them.

BETH LILLY: Yep. So Karl Pola was the patriarch and then there were three sons, Jim Bob and Bill and then they have seven children. And I would say that the reason I took this job was because of the family and the, of course, the opportunity, they’re a wonderful family.

BETH LILLY: And, you know, it’s really, and I say that out of complete sincerity and honesty, they’re an incredible family who they are as people, their commitment to the community. They live with integrity and honesty. And so you always feel like you’re doing the right thing working for them.

STEPHEN CLAPHAM: They’re not gonna be listening to this.

BETH LILLY: I It Steve IIII I kidding. I’m kidding. But you know what, if you ask anybody about the polar family, they will give you the same thing. They’re just incredible what their commitment to the Minnesota Twins, the baseball team, you know, during the pandemic they didn’t lay off one person. So they’re just a great family to work for.

STEPHEN CLAPHAM: They, they’ve got some really amazing interests and a very wide variety of interests and yes, kind of all do their own thing. They’ve got the entertainment, the baseball and then the industrial stuff. So, they, I mean, how did they, how did they work with you? I mean, did they say, do you have any guard rails, things that you can’t do or do? They just say, look, here’s $4 billion whatever it is and get on with it. Beth.

BETH LILLY: Yeah, you’re funny. So, so, you know, they have the operating businesses which is United Properties, North Market. So they’ve got United Properties, North Market capital, real estate businesses. They’ve got systems which is an automation business and then car dealerships and we have people running those businesses.

BETH LILLY: Then there’s the Minnesota Twins, which they own 100% of. And then the Minnesota United, which is the professional soccer team.

BETH LILLY: They got a soccer team.

STEPHEN CLAPHAM: I missed that completely.

BETH LILLY: Yeah, Minnesota United. We, the family owns part of the Minnesota United. Then they’ve got a foundation, we manage the assets for the foundation and then they’ve got River Road, which is the movie production studio, which is Bill Pola. So, and then they have the financial assets. So that’s what our group manages for them.

BETH LILLY: So, the guard rails are, I mean, you know, we get somewhat involved involved with the Minnesota Twins because there’s an accelerator program with startups and things like that. And sometimes we’ll, I’ll get involved with those other operating businesses to talk about car dealerships and things like that because so many other families, wealthy families own dealerships.

BETH LILLY: So there’s connectivity, right? But, but we I I oversee the group and help make the, make the decisions for the financial assets for the family, which are public equities, private equity funds. And then we have a direct private equity portfolio of 13 companies. So it’s fascinating.

STEPHEN CLAPHAM: So I’m, I’m, I’m interested in the private individual companies. But why do you own private equity funds? So, you know, my theory and I’m, I’m, we’re regarding this on Friday the 16th of June, on the 18th of June. My Substack is going to be about private equity. Now, your private equity I think is doomed.

STEPHEN CLAPHAM: And well, I mean, I I was looking at the, you know, it peaked, the the sector peaked, I think $370 billion is now 250 billion. And you know, private equity has benefited enormously from tailwind falling interest rates and they’re now managing too much money.

STEPHEN CLAPHAM: They’ve got too many maths to feed and they’ve acquired all the cheap assets. So, you know, they’ve got all their marks that are too high. I would wager. So they, they just cannot do what they’ve done in the last decades. Now. I know they’re doing some other stuff. Private credit. I wrote about that last week.

STEPHEN CLAPHAM: That doesn’t look too clever to be a disaster. It’s already a disaster. I mean, since I wrote the financial Times said an article in the week about how, how many defaults there’d been. I mean, I think the defaults this year are more twice what they were in the whole of last year.

STEPHEN CLAPHAM: And we’re only, we only just, we’re halfway through June.

BETH LILLY: I agree with you about private credit. Here’s what I will tell you about private equity and it’s how we approach public, our public portfolio in terms of investments that we’re making in these misunderstood, not well covered companies.

BETH LILLY: I believe that there are private equity managers out there that have unique strategies in parts of the market where they’re going to generate strong returns and that those are the managers that we’re looking to identify that have very unique strategies. And there’s so many private companies across the United States that are available for sale or at some point might be available for, for sale.

BETH LILLY: I mean, this is where entrepreneurism and capitalism is alive and well, I mean, the United States has a, has a plethora of them. And so we’re looking to identify managers that are investing in those types of companies you make managers.

BETH LILLY: We’re not, we’re not, yeah, we are not just blindly allocating capital to these multi multibillion dollar funds. We have this very deliberate effort to build relationships with unique firms, implementing unique strategies that are differentiated, that have generated strong returns and we think we’re gonna generate strong returns going forward.

STEPHEN CLAPHAM: Ii I, I’m not saying that nobody’s going to make money in private equity. Don’t get, don’t get me wrong. And one of my, one of my friends here runs a family office for a billionaire and he’s been doing a bit of secondary stuff and private equity funds where he’s been buying, you know, effectively distressed sellers, selling stuff at a discount.

STEPHEN CLAPHAM: And, you know, you can see the, you can see that that sort of things can be, can be quite attractive and definitely opportunities. But and it’s interesting, you share my skepticism and private credit. It’s but the, you know, the private credit I think will come back to haunt the private equity people.

STEPHEN CLAPHAM: So they’re gonna have this funny, I think there’s going to be a funny period because, you know, people will own credit in a business in which another part of the organization has got their, got their equity and, and there’s going to be all sorts of shenanigans. I suspect you mentioned that that quite a lot of families own car dealerships. Why, why is that a popular thing for wealthy families is there? It’s not a tax thing.

BETH LILLY: No, you know what? Here’s, they generate a lot of cash. So you think about these dealerships, they’re great businesses to own. I mean, the service component is unbelievable. That’s where all these dealerships make the most amount of their money. And so they generate a lot of cash.

STEPHEN CLAPHAM: But they’re a finite life, right? Because the service component isn’t gonna, you know, in 15 years we’re all going to be driving around in little robot driven tiny cars.

STEPHEN CLAPHAM: Well, maybe not in America but, you know, here in London, you know, I reckon that it won’t be 15 years before they’ve got, got us all in these little, do you remember Google did a car, a little tiny car. I got, I use a picture of it in one of my presentations and when we’re all driving around in, in little electric cars, then there isn’t gonna be any service income.

BETH LILLY: You know, I think that is a very, I think that’s a long way off. I mean, I, the demand for cars is like 15, I, I don’t know what the number is gonna be this year. 15 or $16 million a million cars. It just, it, it continues.

BETH LILLY: I mean, you know, yes, we have, there’s a softness but the demand for cars is unbelievable. You know, it’s funny. I, my car that I drive is 12 years old, 12 years old, 12 years old because I’m a value investor. I only, I used cars.

STEPHEN CLAPHAM: I read that that you’d only, you’d like to buy cars with 5000 miles on it. And I thought, well, now she’s working for this firm that owns this family that owns these car dealerships. He found to have a new car. I was gonna ask.

BETH LILLY: You, well, you know what, I’ve got my eye on a new car. I’m not going to a car that I want and I’m waiting for it for it to, to come onto one of the lots with low mileage. And I’ve already spoken to our nice guy, Chase Hawkins who run our car dealerships.

BETH LILLY: And I said, all right, when somebody trades this exact car in with 5000 miles, I’m ready, it’s, you know, you figure you drive a new car up a lot, it immediately depreciates like the world’s worst investment.

STEPHEN CLAPHAM: You’re speaking to. You know, I’m a bit of a petrol head and, I’ve owned a lot of cars and I’ve only bought a new car. I think twice in my life might be three Times. I’m trying to remember. And so I, I completely agree with you, but then you’ve got to be, you know, if you’re particular about what you want.

STEPHEN CLAPHAM: Yeah, then I, you know, I understand a new car but the depreciation is ridiculous. But the, the electric car as we get more electric cars, the service component is going to go down. Right. So I’m not sure iii I, I’m just interested because you’re obviously looking at it from the inside. Yeah.

STEPHEN CLAPHAM: And when I look at it and I think about valuing a car dealership, I think that’s quite a difficult business to value because in 10 years time, the service component may be a very significantly reduced component and selling cars, you do make a bit of margin on the car, but it’s quite competitive and it, it’s a razor blade type of model and yes.

STEPHEN CLAPHAM: Ok. There’s going to be a big park of cars that will continue to need servicing. But if I think about what we’re going to have to be doing to combat climate change, we’re going to make it.

STEPHEN CLAPHAM: I mean, maybe not so much in the United States, but I think even there, the government will be under pressure to make it more expensive to people to drive internal combustion engines and that if you can just plug in a laptop or download a piece of software from the cloud, there isn’t a lot of profit in that and the profit accrues not to the middle man, but to the OEM.

STEPHEN CLAPHAM: So I would say that, you know, a dealership is not a business that I would like to be in 10, 15, 20 years from now. And I think the problem with those sorts of businesses is it’s very hard to understand when they’ll start to be de rated. So, I mean, am I wrong? Am I missing something? I don’t know.

BETH LILLY: Well, I, you know, II, I think there’s some logic to your argument about electric cars but I don’t think in combustion engines are gonna go away any, anytime soon. I really don’t, I do not think it’s, I don’t think the world’s gonna move to all electric vehicles. I mean, you know, the family opened, we opened a Ferrari dealership in the midst of the pandemic. Ok. Just to give you a sense of consumers.

STEPHEN CLAPHAM: Now, I know what you’re gonna get now you tell me you got.

BETH LILLY: No, no, no, no, no, no, no, I can, I can, you know that new SUV, I’m not sure what, I don’t even know what the new SUV runs. They get a half a million dollars maybe.

STEPHEN CLAPHAM: I mean, honestly, I, I don’t know, you know, I am a Ferrari fan and I have, I have children and I have children rather than a Ferrari. But, they, so they are so expensive now though.

BETH LILLY: Yes, they are. But, but that’s the one car that when you drive it off the lot, it doesn’t depreciate.

STEPHEN CLAPHAM: No. One of my, one of my friends, used to buy a new one every year and he, they used to give him the same price for his old one. So he was very high up in the list. So they used to order the new one. Exactly the same. I would say. Why don’t you just change the color?

STEPHEN CLAPHAM: You used to have the same car just with a different, you know, in, in England, the number plate changes each year and now every six months it’s exactly the same car. Just a different number in the front. Very, very funny. And it was the cheapest car in the world.

STEPHEN CLAPHAM: So tell me, you said, I think in an interview that you were very cheap and you like to pay 65 cents on the dollar or buy the car with 5000 miles on it.

STEPHEN CLAPHAM: So, I wanted to understand what, how you operate. So when you can’t find 65 cents on the dollar dollar bills, what do you do? Just hold cash and did you do that when you’re running the fund and you do that with family? Is it? Yeah, you just hold and how do you manage when the cash builds up? Do you not feel.

BETH LILLY: You know, there was a point in time, I think the highest level of cash in the portfolio was 20 or 25%. But I have for the most part, given the part of the market that we fish in, there’s always that there were always inexpensive stocks always. So the highest cash level is 25%. But that was just a very short period in time. Yeah. Yeah, we’re not making market calls.

BETH LILLY: It’s more about opportunities. I, who knows where the stock market’s gonna go. There were, there were people out there saying the market is gonna be down this year and look what it’s doing now. So we don’t, we’re, it’s very hard to pro be a pragmatic about the stock market. We’re just investing in businesses and, and where they’re valued and there’s always inexpensive stocks.

STEPHEN CLAPHAM: And given, you know, your situation now, will you just hold those stocks forever?

BETH LILLY: Yeah, I mean, that’s the beauty. That’s the one piece. I remember when I went in to tell Bob Bruce that I was going back home to the, to the Twin Cities. He said to me and it was one of the best pieces of advice.

BETH LILLY: He said to me, he said, you know, the beauty of, of this operation, which I don’t if, if you’re lucky enough to replicate it is you have one client and the one client at that point was Fireman’s Fund because we were managing the insurance assets much like be Berkshire, you know, the insurance asset there that Todd Combs and Ted run.

BETH LILLY: And that’s the beauty of what we do here at the poets. We have one client. So if you don’t, I mean, you know, if you don’t find an opportunity to put capital work, you just sit on the cash, the family thinks in terms of decades, decades, not years.

STEPHEN CLAPHAM: What, what is the plan? Are you like building a Berkshire Hathaway conglomerate? Because you’ve got the private companies. And yeah, I mean, is that kind of, you don’t have the insurance flow but we.

BETH LILLY: Don’t have the flow. But yes, I mean, it’s, I like to say, you know, the family it’s like we don’t have the insurance assets, but the goal is to have like a mini Berkshire. Yep.

STEPHEN CLAPHAM: When you think about where you invest, you’ve got a lot of expertise in house, say on car dealerships. That mean that you’re more likely to go and invest in a public company, car dealership or less likely do you, I mean, do you take that domain expertise and apply it or do you say, oh, we’ve got enough car dealerships. You don’t, don’t want more of them, right?

BETH LILLY: You know, I would say our goal is to be a diversify for the family, our portfolio. So we’re not gonna own, we do not invest in real estate in our portfolio. Given our exposure through United Properties to commercial and industrial real estate in the Twin Cities, Denver and Austin, Texas.

BETH LILLY: And we won’t invest in sports teams because you know, of the Minnesota Twins and the Minnesota United. So we view ourselves as a diverse fire. We might own an auto stop in the portfolio if we think it’s inexpensive, but we certainly aren’t going to make an investment in our, in our direct private equity portfolio in auto dealerships. We, we, we view ourselves as diverse fire.

STEPHEN CLAPHAM: And where do you find the private equity opportunities? I mean, do people just come to you and say, Beth, you look like you’re quite what you’ve got quite a lot of money to invest. We’ve got a business for sale or or is it on or how does it, and do you fully own these or do you part ownership with other families or how does it work?

BETH LILLY: So, our team in our direct private equity portfolio, it’s all minority ownership. Anything that’s majority owned is considered part of the operating businesses. So that would roll up, that would be through aid companies.

BETH LILLY: So they’re all minority. I would say that the opportunities come to us through a whole host of ways.

BETH LILLY: Relationships with other families. You know, there’s a lot of families like to club up with each other.

BETH LILLY: They come through private equity firms that might offer us coin investments opportunities or it might be an industry that we’re really interested in. And we’ve identified this as an industry that is a good business and are looking and, and then we go and we’re in the midst of trying to do this deal and we’ve identified a good management team that we want to organically grow this this business.

BETH LILLY: So, you know, but I will tell you that that there’s some core fundamental aspects to what we’re looking for characteristics, which is it needs to be a good business with a strong management team and the right incentives in place with that management team and have the right partners. Those characteristics are really important to us.

BETH LILLY: I mean that and that those characteristics also apply to our private equity funds portfolio as well as well as our public portfolio. It’s very consistent, good businesses, good partners, good management teams and good valuations. It’s just, you know, and I like to say the price you pay going in determines your return. So we’re very, very, very strict about price and, and very disciplined about price.

STEPHEN CLAPHAM: And how long do you.

BETH LILLY: Hold those for?

BETH LILLY: Well, I mean, you know, it gets back to the tax issue if we could hold them forever. That would be great in the case of some of these covets, you know, you’re, you’re making them maybe with a private equity firm and they have a 5 to 7 year timeframe.

BETH LILLY: So you’re gonna sell, if you’re with another family, it might be forever. So, you know, if it’s a really good business and it continues to create value and compound, we will hold it forever.

STEPHEN CLAPHAM: Have you ever bought out the private equity firm? Did you like the company? And they, they needed to it? Have you ever done that or?

BETH LILLY: That’s a good question. We’ve looked at a couple, we’ve, we’ve seriously considered two different transactions, but the price was such that it didn’t make sense and you decided to sell.

STEPHEN CLAPHAM: And presumably the businesses that you, that you wholly own aren’t for sale. But I mean, is it one of these things that they, that the businesses you own, you want to have forever? Or if somebody comes along and says, I really want a Ferrari dealership, can I’ll buy your I mean, is there any turnover in the main.

BETH LILLY: Part of the, I, you know what I think that if somebody came and offered a ridiculous price for the Ferrari dealership or a ridiculous price for United Properties or AAA crazy price for the Minnesota Twins?

BETH LILLY: The family wouldn’t, you know, I think they’d entertain it. But, you know, that’s a family decision. I don’t know. I mean, that’s a, that’s a, no, no, not, yeah, it’s not, it’s not our decision but you know, there’s a lot of capital out there. So you, you never know.

STEPHEN CLAPHAM: And you know, you’re talking about managing sort of generational wealth and we’re now facing an inflationary environment. How does that change your thinking? And the family’s thinking.

BETH LILLY: That’s a good question.

BETH LILLY: I think it would, it change it, the thinking only would apply to interest rates. It, I mean, inflation is, we’ve had such a low inflation environment for such a long time. I think it, in terms of the impact on interest rates because interest rates are going up. So, you know, inflation in the economy is a little, is healthy, right? In a way. Ok, a little bit, a little bit, a little bit is healthy.

BETH LILLY: You know, what we’ve gone through has been very challenging, but hopefully the Federal Reserve has it under control. I’m more focused on interest rates and what that those impact have on in terms of our portfolio and the environment and the ability to get transactions done and financing. And I think this environment is gonna create some good opportunities.

STEPHEN CLAPHAM: So, yeah. No, I think I’m, I’m sure that that’s right. And you’re a big team.

BETH LILLY: Yes, there’s 10 of us on the team, including myself.

STEPHEN CLAPHAM: And how, what do they all do? Are they all, are they sector specialized or?

BETH LILLY: Yeah. So we have several team members devoted to public equities and private equity funds.

BETH LILLY: They focus on on third party managers in those sectors. And then we have a direct investment team. So people are, you know, and we share a lot of information, you know, one of the most important things I learned again is just the importance of of sharing of information.

BETH LILLY: And Mario was very good about this. You know, he would, he would have a morning meeting and everybody in the firm would come together on the research and portfolio, manage time and teams and talk about what they’re working, what things they found transactions.

BETH LILLY: And so it’s all about sharing of information and how that information applies to what you do. But yeah, so we’re, we are focused on our asset, people are focused on their asset classes. So we’ve got teams focused on those asset classes, but you.

STEPHEN CLAPHAM: Don’t, you wouldn’t have a morning meeting every day.

BETH LILLY: No, not now during the pandemic, we did.

BETH LILLY: Yeah, we have a zoom meeting every single morning. Now we meet formally on Monday mornings. Then there’s team meetings during the course of the week for the public equities and the private equity funds and then the direct. So we, we have sub subsector meetings.

STEPHEN CLAPHAM: And what would make you sell one of your stocks. How often does that happen?

BETH LILLY: Well, we will sell one of the stocks in the portfolio, I’d say for, for two reasons, one, it’s reached its fair value. You know, I talk about the valuation of wanting to buy something at 65% of, of what it we think it’s worth.

BETH LILLY: And over time, that gap will close. But sometimes what happens is that gap doesn’t close. And so even though the stock moves up, there’s still a significant discount. Ok? So you’re gonna hold it for it until that.

BETH LILLY: So we’ll, we’ll sell it when it gets to be 100% of what we think it’s worth or 100 and 10% of what we think it’s worth. And we don’t think that if we project out a couple more years, it’ll go even higher the value. So we’ll say, ok, we’re gonna take it off because everything is discounted.

BETH LILLY: The other time we will sell is if either there’s been a significant change with the management team and we’re not comfortable with the management team or there’s been a change in strategy and you know, a perfect example would be we meet with them and there’s, you know, there’s cash on the balance sheet and they, we say, what are you gonna do?

BETH LILLY: And they say we’re gonna buy back stock and then all of a sudden six months later, they’re not buying back stock, but they’re using that cash and issuing equity to make a big acquisition that we can’t wrap our heads around. So, if there’s a change in strategy or change in management, that’s when we sell.

STEPHEN CLAPHAM: And if, if it reaches fair value you’re prepared to take the tax.

BETH LILLY: Yep. Yep. You quite difficult. Yeah, it is, it is difficult but you know, the market, it’s amazing. You know, the market will, will if you don’t take start to be more, if you’re not discipline selling is harder than buying. If you’re not disciplined about selling, you know, you’re gonna leave money on the table. And so we are very disciplined about selling as disciplined as we are about buying.

STEPHEN CLAPHAM: And can you tell me what your portfolio turnover is? Is it, is it quite low or?

BETH LILLY: Oh, it’s very low. It’s, I would say it’s like 5%.

STEPHEN CLAPHAM: Oh, right. Ok. So, yeah.


STEPHEN CLAPHAM: Yeah. No. Listen, I’m really grateful for your time and I don’t want to keep you because I’m sure you’ve got a very busy day and I always ask people the last question. Same last question. Is there a book or a practice you would recommend to a young person coming into investing?

STEPHEN CLAPHAM: And I loved your notebook and I’m sure you’re going to say to a young young person that they should carry a notebook at all Times. But any other practices, any other or a book that you would, a book would be good if you recommend a book?

BETH LILLY: Yeah. So there was this book that was written, I, I can’t remember a while ago called The Outsiders. Oh, yeah.

BETH LILLY: Yep. That is one of the best books that I’ve ever read about in terms of investing. Just it talks about how those CEO S were just visionaries and I just how they approached capital. All I found that book fascinating. Absolutely fascinating. It is a good book. Yeah, it’s a great book.

STEPHEN CLAPHAM: And do you have anything else other than the notebook? Carry a notebook at all Times? I really like that.

BETH LILLY: Right. Thank you. Notes, write, thank you notes.

BETH LILLY: I know it sounds crazy. But you know, I remember early on in my career this is before this is embarrassing, but email was not what it is. And I would go to see a company and I always sat down and wrote thank you notes to the CEO and whoever I met with.

BETH LILLY: And, and I always, people would always say, boy, thank you for your thank you note. That meant a lot people just would visit us and never write thank you notes. And so I, you know, I, and I learned that as a child to, to write thank you notes and it really makes a difference.

BETH LILLY: So I always and, and my kids, I make my kids. Well, now they’re, you know, and they’re teenagers but they still write thank you notes.

STEPHEN CLAPHAM: I make my children write thank you notes. We have a lovely American friend who, since my kids, since they were born has sent them AAA significant gift. Every Christmas. Yeah. And I keep, I mean, it’s like bizarre. You know, he had not met my children until they were 13 and 15.

STEPHEN CLAPHAM: And I said you have to make time to meet. He’s, he’s a very, very wealthy guy and he, you know, he’s, he lives in both sides of the Atlantic and he doesn’t have much time. Said my children think you don’t exist very, very funny. But I love, I love the idea of the thank, you know, funnily enough.

STEPHEN CLAPHAM: I never wrote to a company to say thank you because I always thought I was doing them a favor by investing. And maybe that was slightly arrogant of me. Although one thing I felt was that brokers were neglected and having been a broker myself, I thought, you know, I remember the nice clients and we would very rarely do lunches.

STEPHEN CLAPHAM: But, you know, once a year you would have lunch with your main, I would have lunch with my main brokers and I always wrote them a thank you letter and you know what I was, they, I mean, obviously I was giving them large amounts of commission.

STEPHEN CLAPHAM: So you know, I was their friend but I was always, I was always their most important and enjoyable call for that reason because they knew that I understood where they came from and I think people don’t appreciate their suppliers enough. It’s quite funny.

BETH LILLY: The other piece of advice is trust yourself. Oh, that’s a good one. Yeah, I, as I said, you know, going to work for Bob Bruce and Jack Burn at Fireman’s Fund, People thought I was crazy. And then this opportunity with the poets, I mean, it’s, it’s like just trust yourself, things will always work out and you just have to trust your own instincts. Nobody knows what’s the best for you except yourself. So that’s.

STEPHEN CLAPHAM: Great piece of advice because thank you so much. I’ve really enjoyed talking to you.

STEPHEN CLAPHAM: You don’t invest internationally. I think you should come to London. There’s a lot of cheap stocks when you do make sure you look me up. And next time I Paul, I don’t, I don’t know when I’ll next go to ST Paul. The reason I went to Saint Paul is because I’m a petrol head and they used to hold the street road Nationals in ST Paul, Minnesota, which is a gathering of pre 1948 cars.

STEPHEN CLAPHAM: So it would be like 10,000 pre 1948 cars and ST Paul’s Fairgrounds within the nicest fairgrounds that they used to hold them at. They now hold them every year in Louisville, Kentucky which has got the, you know, terrible fair, no shade concrete and not nearly as attractive. But, you never know.

BETH LILLY: I may make it and London is my favorite, my favorite city.

STEPHEN CLAPHAM: Oh, so you do come here? Yeah, but that’s not for business. That’s for pleasure.

BETH LILLY: Sometimes I come for business to visit managers. All right. Well, you know where I am, I know where you are, Steve.

STEPHEN CLAPHAM: I look forward to seeing you. Thank you so much. No, thank you. I really, really, I really enjoy talking to you. I really appreciate it.

BETH LILLY: This is great. Have a great day. All right, you too. Bye.

STEPHEN CLAPHAM: Well, Beth Lily is a formidable lady. If you watch the video version of this podcast on YouTube, you’ll see that we had great fun recording this.

STEPHEN CLAPHAM: I learned a lot. Although I’m still curious as to what Beth’s new car will be.

STEPHEN CLAPHAM: Beth is an inspiring role model, especially for a young woman, considering a career in investing this podcast I’m afraid has a male dominated audience and I would love it if more women would listen. So please please share this episode with a woman friend, especially one who’s considering a career move. Thanks as ever for listening and please feel free to share it with all your male friends as well.