Hg's Nic Humphries - investing at an inflection point in history

Welcome back to the Alt Goes Mainstream podcast. Today’s episode is about mining for investment success in enterprise software by going “an inch wide and a mile deep” with someone who is one of the industry’s most prolific private equity technology investors. We sat down with Nic Humphries in Hg’s London office. Nic is the Senior Partner and Executive Chairman of Hg and Head of the firm’s Saturn fund. Hg, one of the top 10 largest PE firms globally based on the PEI300 ranking, has built an impressive investment engine focused on mission-critical enterprise software. The firm has built a portfolio that is a “transatlantic ecosystem of software and services businesses” — representing over $180B in collective enterprise value across its 55 portfolio companies. Nic is responsible for Hg’s strategy, management, and governance. On the investing side, Nic focuses on larger software investments that provide daily-use mission critical applications for accountants, tax / compliance professionals, and designers / engineers / scientists. He has brought his electrical engineering background to bear to go a “mile deep” into a category where Hg has become an unquestioned market leader. Nic balances being both a detail-oriented specialist with a vision for both the enterprise software industry and Hg as a firm. We had a fascinating discussion about enterprise software investing, how to create European software giants, applying AI to make companies more efficient, and much more. We covered:The origin story of Hg.How Hg grew into one of the industry’s leading software focused private equity firms.How an engineering mindset has helped Nic become a leading investor.Why Hg focuses on mission-critical enterprise software and why it’s a compelling investment thesis.Why enterprise software investing can be considered a low volatility investment strategy and how Hg has delivered consistent returns to investors.How to effectively manage exits and DPI.Why Europe, why now?How AI could impact technology and services businesses. Thanks Nic for coming on the show to share your wisdom and expertise about enterprise software and private markets. A word from AGM podcast sponsor, Juniper Square When was the last time things were easy for GPs? Fundraising remains challenging, providing liquidity to investors is even harder—and broadly speaking, most GPs are underwater operationally. It’s not about to get easier, either. 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Show Notes 00:00 Introduction to our Sponsor, Juniper Square 01:40 Introducing Nic Humphries 01:56 Hg's Investment Strategy 04:03 Nic's Background and Career Journey 04:46 Engineering Mindset in Investing 05:14 Long-Term Business Thinking 05:58 Hg's Focus on Accounting Software 06:45 Growth Drivers in SMB Market 09:05 Impact of AI on Enterprise Software 09:34 Platform Shifts in Technology 11:10 Adapting to AI in Business 12:15 Mission Critical Software 14:02 Challenges of AI Integration 14:58 Embedding Products and Services 17:13 Organic Growth vs. Acquisitions 20:51 Geographical Expansion Strategies 21:59 European vs. North American Markets 23:30 Management Teams and Expansion 24:32 Jurisdictional Challenges in Europe 25:05 Hg's Investment Philosophy 25:50 Mission Critical Software in Europe 36:22 Hg's Consistent Investment Returns 38:00 Conclusion and Final Thoughts 40:13 Understanding Recurring Revenues 40:59 The Importance of Discipline in Investing 41:48 Learning from Past Experiences 43:30 Maintaining Excitement and Focus 45:26 The Role of Realization Committees 46:44 Continuous Improvement Culture 47:42 The Importance of Cash Returns 48:51 Exit Strategies and Realization Committees 50:32 Re-underwriting Investments 52:40 AI's Impact on Software Development 54:17 The Rule of 40 and AI 54:38 Investing in AI: Startups vs. Established Businesses 55:59 Hg's Growth Strategy 58:56 Specialization in B2B Back Office Software 01:01:35 Fund Structure and Management 01:03:27 Expanding into the Wealth Channel 01:03:48 Hg Capital Trust and Fusion Fund 01:05:27 Communicating with a Broader Audience 01:06:39 The Importance of Brand in Wealth Management 01:07:32 Connecting Private Markets to Everyday Life 01:09:36 The Prevalence of Private Companies 01:11:09 Aligning Interests with Investors 01:12:19 Investment Decisions and Long-term Growth 01:14:21 Future Growth Opportunities for Hg 01:16:38 The Role of AI in Future Investments   Editing and post-production work for this episode was provided by The Podcast Consultant. Disclaimer The views and opinions expressed in this episode are those of the speaker and do not necessarily reflect the official policy or position of any affiliated organization. Any references to past performance, including IRR or MOIC figures, are presented on a gross basis and do not reflect the deduction of fees, expenses, or carried interest. These figures are illustrative and not necessarily indicative of future results.  Statements regarding industry rankings, success rates, or performance consistency are based on internal analysis and may not be indepe...