Michael Choe - Atomization of Private Equity Decisions at Charlesbank (EP.432)

Predictive Models

Charlesbank Capital Partners has revolutionized its investment strategy by adopting predictive modeling techniques. Michael Choe explains that the firm transitioned from traditional five-year LBO models to a proprietary two-year "fan of outcomes" model, which uses Monte Carlo simulations to predict investment success 1. This shift allows for a more accurate depiction of potential outcomes and reduces biases inherent in older models.

We are underwriters of a very uncertain future probability distribution.

--- Michael Choe

By focusing on two-year EBITDA performance, Charlesbank has found a more reliable predictor of investment success, enhancing accountability and precision in decision-making 2.

   

Analytical Tools

The analytical tools at Charlesbank have significantly evolved to enhance decision-making. Michael Choe describes how the firm's decision-making process is akin to a manufacturing line, where each decision is an atomic unit of production 3. This approach ensures that every step, from industry selection to company focus, is meticulously analyzed for value creation.

The atomic output of all of those workloads is a decision.

--- Michael Choe

The "fan of outcomes" model has influenced how the firm searches for investment opportunities, encouraging teams to think probabilistically and focus on asymmetric value distributions 4.