Ten weeks after MatlinPatterson Global Advisors partner Kenneth L. Campbell took over as CEO of Standard Pacific Homes, and on the eve of the announcement that two of the company's top executives had resigned as part of a massive downsizing, he spent an hour talking to Big Builder senior editor Teresa Burney about the pains of shrinking the company, the promise of growing it again, and reflecting on the timing and ultimate value of MatlinPatterson's 65% investment in Standard Pacific's stock and for 49% of its voting rights.

Campbell, 52, has spent more than 20 years of his career working as a corporate turnaround specialist, parachuting into companies for a year or two or more and then moving on when they stabilize. For his Standard Pacific tour of duty, he's taken a small apartment on the ocean near the company's headquarters in Irvine, Calif., but he hasn't seen the view yet.

KC: I haven't been there when it was light out yet. I'm looking forward to seeing the view. But that's the nature of the beast, right? There is a lot of work to do here. It's OK, I'm used to it.

BB: It was December when you came on board as CEO. How long were you involved with Standard Pacific before that as a partner in MatlinPatterson?

KC: I was one of two partners who did the deal. So we had been looking at this thing for a while. We started the offer in March or April (2008). And MatlinPatterson is always a fairly active investor. We were particularly active after the rights offering in August. So I guess I came on in the middle of December.

BB: So you all were doing due diligence for a little while?

KC: You bet. We were making a lot of investments in the home building business.

BB: Well, what else did you buy?

KC: Well, we can't disclose a lot of it. MatlinPatterson decided sort of in September, not of last year but the year before, that this was a sector that was in trouble, and MatlinPatterson buys things that are in sectors that are in trouble. And we were kind of enthusiastic because it had been a long time since there had been a sector in trouble in the United States, and MatlinPatterson's thing is acquiring assets with public debt.

So we started buying public debt in various and sundry things, including Standard Pacific. But we probably looked at all the usual suspects and maybe made investments in lots of them. And then we would learn more as we made investments and sort of looked around for opportunities. We made some early investments in some early residential projects that didn't turn out as planned, but we learned a lot in each investment that we made, got a little smarter, thinking, "I should have looked at that." But, if you are going to make mistakes, better to make them early.

And then we decided that the Standard Pacific platform was a good one and was positioned in a way where we felt that we could get in there in a significant way relative to others. It was the right size, it had a big enough platform, it was in need of money.

BB: In dire need of money.

KC: There were worse. We were a big creditor to Kimball Hill. So we dealt with others. But they (Standard Pacific) needed money, they needed a solution. So we decided it was worth the risk. Big company, big platform, lots of debt, but we thought manageable, and we thought the cycle would come back before the debt came due.

At the time we made the initial investment, we probably thought there was more money available to acquire other assets. That was the plan. Because of the way we did this, by putting money into the company as opposed to buying people out, the benefit of that is that the company ended up with $600 million or so from the two steps. Then it turned out that , hmmm, the world is getting a lot worse, and we need a longer runway perhaps. So, instead of having cash available to take advantage of the market, we don't have as much cash any more, and we have to adjust our business model.

First, size-wise, we have to get it down to size to match what we are doing right now in terms of sales. I think that is step one. And step two is figuring out what the right business model is. I think that we have to do some sort of basic, back to the drawing board, what do we want to be (analysis). Not do we want to build furniture, but how concentrated a builder do we want to be and which markets should we concentrate on since it turns out that we have got to be a little more focused.

So part of the exercise and part of the reason why I am here is as time went on and the market got even worse, the amount of adjustment to the company's infrastructure that was required had to be a much bigger deal. Instead of cutting 10 to 15% of the staff, it was a much bigger challenge, and so it looked a lot more like a turnaround again, which is what I've been doing for 22 years.

BB: So this is what you do?

KC: So, I had gone through this before a bunch of times, although it wasn't my hope when I went to MatlinPatterson. I had said I never want to do that again. You have to live away from home, eat Weight Watchers every night.

It's a big investment for MatlinPatterson as it is, and MatlinPatterson still has an interest in investing more in the home building space.

BB: It hasn't had enough yet?

KC: Well, the opportunity is getting better. To a certain extent, the fact that the market continued to go down by more than people thought it would means the buying opportunities are going to be better. There is no question that this business is going to cycle. And MatlinPatterson is big on investing in cyclical business at the trough.

This business will turn around, People are going to continue to have babies, and the United States is going to continue to be a place where people want to move to. So the demand is going to be there, and the Chinese are not going to start building homes outside the United States and importing them to Riverside.

So this is a business that has a reason to exist, as opposed to a lot of other businesses that may not. You know newspaper advertising, I wonder if that will ever come back. The home building business in the United States will come back. There are a million or a million and a half new houses that people are going to need every year

And people don't build houses as loss leaders. It's not like a grocery store where they will sell paper towels cheap so you will buy something else more expensive. All the costs in home building are virtually variable, so nobody is out there building homes when they know they are going to lose money.

So not only are they going to come back, once you get through the foreclosure thing and the excess supply thing, it will be a profitable business. You have got time to figure it out because it's going to be a while. So, it's going to come back, and it is going to be profitable, so the trick is to be there when it comes back.

BB: And in the right place.

KC: Yeah, part of our thing is we want to be in markets where when there is a recovery we will recover. There is an argument for a broad diversification. I think that is part of what Standard Pacific was trying to do in the past. But we are not going that way. We are concentrating on being positioned in markets that, when the increase in demand comes, it's going to be in those places first.

Although those are the places that have gotten nailed for the same reason, because they got overdone and overheated, I still think folks in Ohio are going to slowly but surely immigrate to places like Phoenix and Southern California. Shoveling snow is just not that much fun. I know because I went home this Christmas, and I had to shovel ice off the driveway.

BB: Where is this?

KC: In Ohio, that's where I'm from. I'm a small-town Ohio person. My father still lives there and my sister. The reasons why Southern California and Phoenix and places like that, why people move there, they are going to continue. I don't think weather patterns are all of a sudden going to change, and Southern California is all of a sudden going to become a crummy place to live.

So we want to be in a place that, when it (the market) turns, it's going to turn. So, on a relative scale, they will turn at different times, but still about the same. Over the course of a year or two you might be better off in Southern California, and it might take another year or two to show up in South Florida or something. But we have a pretty long-time horizon as an investor.

BB: How long?

KC: We tell people six to eight years, it is sort of what I think it will take. That is what I told people when I first started, six to eight. I said that to people hoping it would be five. Now I say six to eight, believing it. So the trick to us is to be as big as we can be and as well-positioned as possible when the market turns around so that we can be as big a player as possible in the turnaround.

So part of that is to get this business properly sized and to get a strategy in place and then, to the extent that we have an investor who is still interested in investing in the home building space, is to find a good way to take advantage of the opportunities that I think in the second half of this year and the first half of next year will be out there.

BB: You think as soon as the last half of this year and the first half of next year?

KC: I think that the asset-buying opportunities are when the banks finally give in and start selling these portfolios. You are seeing a new bankruptcy every other day or whatever it is, so there are probably 300 or 400 more small businesses that are going to go out of business and maybe three or four bigger ones, and ultimately the banks won't be able to carry those loans on their books any more.

And, a lot of these are really good assets. I mean John Laing filed the other day. They build nice homes, and they have a good management team, and so it's not that the bad companies are going to be the first to go bankrupt necessarily. Maybe they bought a lot of land at the wrong time, and they've got a lot of leverage, but if you can eliminate the leverage problem, which bankruptcy helps a lot with, you can get some really good land not to mention good people.

I think those opportunities are going to peak at the second half of this year or the first half of next year. That's a big gap, a 12-month period. And now TOUSA has announced that we are not actively pursuing them. They got a little mad at me because I mentioned them on the call. There will be lots and lots and lots of land-buying opportunities. Now the problem that we have is that we don't really have the money. We just have an owner who has an interest in investing more. It has to work financially.

BB: By "we," you mean Standard Pacific.

KC: Yes. We may buy one-offs here and there, but basically we have to conserve our cash until we get a better feel for what is our business model. The cost-cutting exercise that we are going through, that started in earnest the day after I got here, and that we are in the middle of doesn't get us to the point where we are a big profitable company. It gets us to the point where we are not burning as much cash as we were before.

There were pretty big cuts in terms of the overhead, but I'm sure you know as well as anybody the market has not improved in 2009. I don't think we are going to sell more houses in 2009 than we did in 2008. 2009 is going to be worse than 2008, at least in our world.

BB: I guess you looked at a lot of balance sheets when you were shopping, didn't you?

KC: Sure, particularly the public ones, some of the private ones. We looked at some of these companies that have since gone bankrupt.

BB: Kimball Hill?

KC: Yeah, Kimball Hill and a bunch of private ones. This bid-ask spread problem that you guys have written about still exists. Banks are thinking they might have to take a 15% discount, and people are offering to buy it at a 50% discount or 70% discount. So there is still a disconnect in some of these things. So sometimes something really bad has to happen, and then they don't have any choice. Then you just have to sort of navigate through the bankruptcy process. That's something MatlinPatterson has as much experience with as anybody. So, as a partner, they are a good partner for Standard Pacific because that might be a good way to get a hold of some of these assets and, to the extent that it makes sense, to sort of put it in Standard Pacific and sort of augment their model so it becomes a bigger player in markets where we want to be.

Standard Pacific has experience in some parts of the world that are harder to do business in. Southern California is not an easy place to be a home builder, but we know how to do it. We have built more homes in Southern California than anybody. From my perspective it is a great place to build homes because it's hard to get into, and we've been here for a long time, and we have always performed better here than in other places. I think the weather is pretty good here. It's 72 outside right now, and in Ohio, right now it's 20 degrees and snowing.

BB: You were talking about more reductions.

KC: What we are doing right now is we are adjusting to match our size, and that's going to take another four to six weeks.

BB: How far have you cut, and how far do you think you will end up cutting?

KC: Well, I think by the time we are done--from peak to trough--we will have cut 75% or thereabouts. There is some question about what the model looks like.

BB: You must have to relook at everything after that.

KC: When you make cuts that big, it's tricky. One of the things about this business is that it's not tricky from the standpoint that you have got a big fixed-cost thing, and there's nothing you can do about it. But you can't just whittle away at the edges. Let's say you've got somebody who is really good at their job and they have been there for 15 years, and whatever their job is they are really good at it, and for a $4 billion company they are the right person at the right cost. But what do you do if you are a $1 billion company. It's not that the person is not really good at their job, it's just that, do you need somebody that has got that skill set with that much experience if you are $1 billion company?

So those are the kinds of decisions which you will see. First of all the CEO went. And the CFO and the general counsel are going to go. We have perfectly good people to put in those jobs who are basically the people who reported to those people. And, for a $1 billion company, they will be great. They are enthusiastic, and they weren't part of the team that created the problem. Part of it too is that you have to change the culture of the place.

BB: You are basically giving a huge makeover to the company.

KC: Yes, and part of the trick is you want people to use this out-of-the-box thinking. I hate to use that word. You can't leave the same people in the same jobs and expect a different way of thinking. You have got to change enough so it doesn't look familiar. One of the things we did was, within a couple of weeks of me getting here, we moved out of our headquarters building. Because we used to have two buildings, and one was sort of the regional office for California and had some mortgage people in it. We had two right next to each other. And one had the fancy offices, which is where the corporate was, and next door we had Orange County's operations. So I added up the number of people, figured out how big the cubicle was, and even though the other space was rented, we moved out, and now we are in the not-so-fancy place. You just have to do things like that. So now it's a crowded busy place, and before it was sort of a spread out, every other office was empty. People had offices big enough for a family of four.

BB: That has its own psychological effects.

KC: Yeah, and everybody knows we are trying to do this stuff. Unfortunately it gets personal at some point because there are really good people who care a lot for the company that work really hard, (but) you just don't need three of those people. You need two or whatever in that job.

When you have already cut 60% of the company, and you are going down to the next 15%, you are not dealing with the people who have got marginal performance issues. You've gone through those layers. So now you are letting people go that you thought were really good. It's just an extraordinarily human painful thing to do. You feel crummy. What you have to do, because I have done it unfortunately before, is you have to really believe you are going to save the patient because the cost from a personal perspective is so high. If you don't think you can save the company, then don't lay people off because it's just too painful.

BB: Just go into bankruptcy and forget it.

KC: Right, but we have over $700 million in the bank, and we are going to survive. It's just we are going to have to be smaller for a long time. I think the last few companies I went to and did these turnarounds, they all got smaller when I went there, and all were bigger by the time I left and are all even bigger than that now. Sometimes it's just a necessary part of the life cycle, and a lot of companies are going to go through it.

It's really horrible. So one of the things we have to do as a company, the people who are here now, we have got to figure out how to make the place fun. You know even if we are operating in this horrible environment. Maybe it's sort of dumb stuff, but we need to have more pizzas and once a month beer things and celebrate birthdays and whatever because it's true we are operating in a horrible environment, and it's difficult. It's not true that you have to walk around depressed all the time.

One of the things that I am trying to work hard at with the senior staff is that we have to figure out ways for people to have more fun here. Part of that is we have to finish doing whatever cuts we are going to do because it is really hard for people to have fun if they figure they are going to lose their jobs.

BB: You have to be swift.

KC: One of the rules of making companies smaller is that you want to do it once. We had this plan back in December that had been developed by an outside consultant, and by the time they rolled it out, it was already outdated because it wasn't really enough of an adjustment to accommodate what had happened to the business.

So I came in and immediately did a lot more adjustment to that, but by the time I got to my board meeting two weeks ago, it was already old news. So I went into the board meeting with a plan that showed a much more significant cut than before with lower revenue projections, and I told them that we don't have to spend a lot of time on it because it wasn't enough. So it's been a moving target.

I think at this point I don't know if it could get any worse. Of course, if you went around and asked people, they would tell you sales have actually ticked up a little bit.

BB: But you said during the meeting that you thought those results were seasonal and weren't anything indicative of a sea change.

KC: Correct, totally correct. What it means is OK, assume your business is going to be down 8% from the year before and size your business that way, and if you assume that you won't be surprised. At some point you have to throw up your hands. You can't run a business assuming you are going to sell a hundred homes. So there is no point in doing that math. And we are sort of in line with the market. I don't think we are doing any better or any worse than anybody else.

So we just have to get ahead of it. If we size the company for the sales that we had last year, which was sort of what we had done almost in our first cut back in December, we would have to cut a lot, but we are not going to sell as many houses as we did last year. So the ending cut of costs to companies by the time we are done versus 18 months ago is huge. It's like a 50% to 60% cut, and that's not just people, and from the peak it's 75.

It's hard to do, and there are things that you just have to stop doing.You can't tell everybody do three times as much work. That doesn't work. How inspiring is that? There are only so many hours in the day you can work. You want people to believe in a solution because if they think it's going to work, people want this thing to work. This is an institution that has been around California for a long time.

People like to do business with Standard Pacific, and they like Standard Pacific, and maybe they pay a little more attention to people issues than a lot of places. We have been on the lists of great places to work. My guess is we won't be on that list next year.

BB: Standard Pacific was always very differential to their regional presidents, making sure they had buy-in before launching national programs.

KC: Yeah, there's a kind of trade-off right, entrepreneurial versus control. I think what you have to do is think a little bit more about what things need to be done at the local level and which things do not need to be done at the local level. I have seen it in a lot of businesses. They don't need to pick the phone system. They don't need to write their own checks. They don't need to do their own payroll. They don't need to make up their own personnel policies.

There are some things they do have to do locally. Like, you don't buy land from Irvine if you are buying in Florida. A house that works really well in Phoenix doesn't necessarily work really well in San Diego. There are differences, and there are trade-offs. Everybody has a different model. I think that part of the reason it ran into trouble is that it was a little too "go do whatever you want, tell me how it goes." But to be fair, I think there was a directive from the core to go buy land I don't care what it costs kind of thing. And their timing was unfortunate. They ramped up, and the debt was available, so they did it at the wrong time, and I'm not sure they did it all that well.

If you are in South Florida, it's a different world. People in South Florida spend 18% of their income on houses, and people in Southern California spend 35% of their income on houses, and their incomes are different too. Some of the things translate well. Like the way they sell a house, it's not just about the house, it's about the service and making people feel good about it. Fixing things when they are broken. In California, it has a bigger return because we are building higher-end houses, and the trick is to get that balance in other places. Southern California has always been our most successful market.

BB: If you were going to Monday morning quarterback, maybe staying there was the right thing to do?

KC: I think that the home building industry and the public building industry--if you look over 20 years and add up all the money they ever made as a group, including the last few years--I think you come to a number that is pretty close to zero. In other words, some people made money, and some people lost money, and as an industry you didn't make money.

BB: The actual margin for building a house has historically been low.

KC: The reason that works is you don't have a big fixed cost you are trying to cover. You compete against people with the same costs. The people who do the work you hire when you need them and you send them home when you don't. And the supervisor can supervise the construction of a dozen houses or something, and a sales manager can support lots of sales. It's a pretty variable-cost business. So if you are only making 7% or 8%, it's OK because you don't have the capital.

Now the making money on the land thing, I happen to think that over the next 18 months that buying entitled residential land is a good investment, so if we can do it we will. I think it's going to be cheap because people are unloading it for lots of reasons. Not the kind of unloading that was done a year and a half ago, which is kind of my worst stuff. Now the good stuff will come on because people just can't hold on anymore. So anyway, I think it's going to be a good land buying opportunity.

But there are two very different activities that home builders do. One of them is building and selling a home, and the other one is buying land. And a lot of people have even split the two. It's very different activities. I have even toyed with the idea of being more explicit about the difference--whether you do it as a separate entity or whether you split it off from the company.

One of the things that we have done and a lot of others is that the regional people have everything. They own the land, and historically we haven't really charged them much for the land. Of course, that's how everybody got into trouble. The compensation schemes were tied to earnings and sort of voided the costs of assets. So there was no cost to acquire assets. And so it makes a difference whether you have a lot of assets to generate the earnings or not a lot of assets to generate the earnings, but they were not really dinged for that.

So the incentive scheme was a little off. That's not just at Standard Pacific, but at other places. So there wasn't a lot of cost in the system for buying the assets, so they did it. People did what their compensation schemes told them to do. So now I'm sure every builder you talk to will say that they are redoing their compensation structure. I don't think there are going to be any CEOs who make $27 million anytime soon. Everybody is trying to be a little smarter about their compensation schemes.

One of the silver linings always in these turnaround things is successful businesses probably even have more opportunities to improve their businesses than struggling ones, but don't because success hides them so they don't have to. So if you are making money, why worry about it.

So when it doesn't do well, then people really examine it, and they get down to OK, do we really need to do that? Because they have to in order to survive. I think that the entire industry will come out of this, not just home building, but other industries too will come out better, more focused on the right things.

We are not unique in that. I think every builder is doing it. Some of us will be better at it than others, or more aggressive, but you know I think a lot of waste will go away, and people will pay a lot more attention to the cost of building the house and make sure to the extent that something is expensive that the customer thinks it's valuable. In other words, we are not going to downgrade our houses, for instance, like KB Home or whoever it is making little houses. We are not going to do that because I think eventually when the world comes back, they are still going to want nice houses. I don't want to be the guy selling the little tiny houses, because that is not what we do.

BB: You are going to keep your brand. Standard Pacific is not known for its starter homes.

KC: And we are not going to be. So, if there are things in the house that cost us a lot of money to do that nobody even notices, then let's not do that. And we spend a lot of time now with teams of people including outside the industry and outside our company and focus groups and all that kind of stuff trying to make sure that the stuff that we are doing in the house is stuff that people want. But for us it's not a huge change. I can't tell the difference, really. Some of it is just being smarter in how you build. There is stuff that is overkill, and nobody ever thought about it. So we will spend our money more wisely, and when it comes out the other side, we will be more profitable.

By the way, unfortunately, everybody is doing the same thing. But then everybody makes out. The trick is to do your best, to try to do as good as you can so that you come out the other end better than everybody else or as good as everybody else.

I think if you are there and you've done the basics and you still have land to build on, everybody will do well who is still in the business. There are going to be a lot fewer people who are in the business when the upturn starts, mostly on the private side, but also on the public side. So, when the uptick happens, the people who are there are not going to have nearly as much competition as they did in the past. Unfortunately, I think a lot of private builders are not going to be able to last.

BB: One of the thing you have mentioned is that you say your strength may be that you are not in the home building industry and that might be one of your weaknesses as well. Was there something that when you got into the business that surprised you, that was sort of different than other businesses?

KC: No. The biggest problems that we have right now in home building are not that complicated. You can go to the receptionist and ask them, "What do you think the biggest problems in the company are, and they are probably right."

BB: Did you do that when you got there?

KC: I sort of did. I didn't ask this particular receptionist, but I did ask people at that level in the organization. You know I do it in a casual conversation. You have got to size your overhead to match the size of the business. Does that sound complicated? Do you need an MBA from a fancy school to do that?

One of the hidden gems here for me anyway is this guy Scott Stowell. He's always been behind the scenes. He has been my partner in crime, and he has been in the home building business a long time, and he's very open. I say, "Well, why don't we do this?" And he will say, "Well, maybe." He's not one of these guys who is like, "You're an idiot." He gets it, and that's helpful with everybody else because they say, "OK, it's OK to be open." What scares me is when you see people who don't want to be challenged. They may be right, but it will be better if they are open, and Scott is so open that I think it's contagious. And prior senior management wasn't always so open is my impression. I wasn't here. I think that people have to be willing to expose themselves. Do you know what I mean?

BB: To say what they really think or feel?

KC: You can tell that I'm a pretty open fellow. I talk too much, and I expect them to do the same thing. I don't expect them to not make mistakes. That doesn't mean they are free to make mistakes, but you want people to throw things out that seems crazy. And then we will figure out if it's crazy and go on to the next thing. You don't want people who say, "This is how we do it." Those people make me nervous, even if they are right.

It's not an industry where people are famous for it being the best run industry on the planet. I don't want to say something negative about the industry. I only go into places that are at the bottom. You can sort of define the bottom as when Ken comes in. Although, this time, as everybody knows, I am not getting paid, right? I have a big enough investment. If it works, my sister's charity will make out well. I'm not sure my lifestyle will change, but more people in Cleveland will get fed.

She runs the Cleveland Foodbank that is a huge organization that feeds 50,000 meals a day. We need people like that because it turns out people need 50,000 meals a day in Cleveland. And that number ain't getting any smaller. There will still be hungry people when we recover, whenever that is. And we will. That's the nice thing about this. We will recover, and we will be there, and it will be fun. The problem is that I think it might be a long time. I think, three years from now, four years from now, it could be a long time.

BB: Did you have a plan when you came in, that this will be a one-year gig, a two-year gig? What did you tell your wife?

KC: Well, she is used to that. I leave when it's finished. Sometimes that means if things are going well and it's stable, now you can attract a real person for the job. A lot of times it's just the business is doing really well, and we sell it to somebody. But more times than not, once it gets stable and it becomes OK, now we have to work on the next thing, then I'm not really the right kind of person. There is always something else for me to do, including working on my golf game or going to the gym, which I am also happy to do.

My last job it took 12 months or 14 or something. The one before that it took two and half years. Before that it was a year, so it varies. Then, you know, stuff happens. In other words, if the market turns around a year early so we are looking at 2011 or 2012, and things are booming, and we decide we want to merge with whoever. Things happen where you don't need me. The other thing is that I happen to be a big fan of Scott (Stowell). I think it won't take long before he's running the show anyway, and I'm getting credit for it.

BB: Are you happy with when MatlinPatterson bought the stake in Standard Pacific, or if you had it to do over again would you have waited?

KC: The market got worse after we bought it, and it got more worse than what I expected. On the other hand, the opportunity to invest more money at a better return today is greater. So, it's kind of a mixed bag. If you take the market thing out of the picture, then we did the right thing at the right time in the right way.

The fact that it's still hanging in there, and we still think we are going to make money on this deal, I don't think there's any question. It speaks to the fact that we did the investment the right way. There wasn't an investment you could have made in June last year, whether you were brilliant or lucky that would have been good.

So, is it performing worse than we thought? Yep. But that's OK. We don't try to buy things at the bottom, and we don't try to buy them at the top. We don't try to be that smart.

So, yeah, in hindsight, the market got even worse, but we're OK with where we are. We are still going to make a good return on this. It's going to take as long as I said now. Whereas, before what I really believed was that we would probably get it done faster, now I am not so sure. But the flip side is MatlinPatterson still has billions of dollars to put to work in their current fund and everybody there still believes more than ever that there are still going to be good investment opportunities in the residential home building business.

When somebody like me does what I am doing now, that means I am not doing other things. So I have decided that I am going to place my whole bet on this fund on home building, and I am going to forego the opportunity to invest in other things and spread out, diversify my risk personally.

So I've decided this is the right place to invest, and I am sort of looking forward to increasing my investment and convincing the partners of MatlinPatterson to do that, and I think that there is going to be really good opportunity. I think there will be lots of really good opportunities. I am not worried about missing THE good opportunity.

So I think that we will still make a good return on the money we have already invested and that we will make an even better return on the money that gets invested in the next 12 to 18 months. And the fact that the market got worse, that's just what happens, it's life, we do that all the time.The good news is that we are not a hedge fund. We are an equity place, and we have a seven-, eight-, nine-year horizon. We still have stuff in our first fund in 2001. So we have the benefit of patience where the hedge fund doesn't, and we have more money to spend. I think the opportunities to add value to the business are going to be really good. So although we maybe oveorpaid early, we are going to get a better deal on the next $300 to $400 million, whatever we put in. And so on the average in the end, we will do fine.

BB: What about replacing some of your senior managers with people of less experience?

KC: Some people would say they are not as strong as fill-in-the-blank person. Do they (the new managers) have as much experience and as blah blah blah as those guys? No. These guys are upbeat and eager and excited about their job, and they are very good at their job, and the board is totally comfortable with them. The market may react negatively to that. I think it provides some energy. Obviously it's a lot cheaper. And they'll just think life is grand.

Part of what I like to do at these places, you have got to get people upbeat and happy. At every company there are different things to do. I think removing that layer is going to provide life to the place. OK, I'm the weird CEO who likes everybody to come into my office whenever and talk and go out for beers. That's a new thing here. That was not the style of the prior guys. Some people would say he's too flip and he makes stupid jokes on serious things like earnings calls, whatever. So, it's a little livelier. They laugh at themselves a little more because I do. These are things that I think in the end are important and make the place more fun, and I think it makes people more successful, not just professionally but personally. We will see how that goes.

The top of this company looks totally different now. You can't leave the same fox in the henhouse and expect a different outcome. There are all those jokes about if you do the same thing twice and expect a different outcome that's the definition of stupidity.

Although all these people are good and nice and conscientious and competent and all those things, if you leave the same people in the same place, you are going to get the same outcome. Sometimes you just have to turn things around. A little chaos is a good thing.

So that's what we're going to do here. The train is going so slowly the risk is not that great, and the risk of continuing is obvious. If we stay on the same track, we know where it ends up, so we might as well get on a different one.