5 observations from 10 days of manager meetings and AGMs in New York and Boston:
1. 𝗜𝗻 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗘𝗾𝘂𝗶𝘁𝘆, 𝘀𝗲𝗰𝗼𝗻𝗱𝗮𝗿𝘆 𝘃𝗼𝗹𝘂𝗺𝗲𝘀 𝗵𝗮𝘃𝗲 𝘀𝘂𝗿𝗴𝗲𝗱 𝗶𝗻 𝟮𝟬𝟮𝟱 as LPs and GPs take a more proactive approach to portfolio management after years of low DPI. Even large US endowments were sellers; high-quality portfolios that would not have traded before. Secondary funds that deployed from 2022 (with wide discounts) through 2025 (with today’s high-quality deal flow) show strong early performance and could become a very attractive vintage.
2. 𝗘𝘃𝗲𝗿𝗴𝗿𝗲𝗲𝗻 𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲𝘀 𝗮𝗿𝗲 𝗲𝘃𝗲𝗿𝘆𝘄𝗵𝗲𝗿𝗲. Setups vary widely: while many have a retail angle, sophisticated ones are anchored by institutional investors willing to lock in for the long term in exchange for fee rebates. Their idea: PE beta in a capital-efficient manner, incl. skipping the ramp-up phase. In our view, investors must assume that these vehicles will be gated in times of stress and be aware of how other investors in the structure might behave.
3. 𝗖𝗿𝗲𝗱𝗶𝘁: years of heavy inflows and increasingly commoditized financings have created intense competition and 𝗲𝘅𝘁𝗿𝗲𝗺𝗲𝗹𝘆 𝘁𝗶𝗴𝗵𝘁 𝘀𝗽𝗿𝗲𝗮𝗱𝘀 𝗶𝗻 𝗽𝗮𝗿𝘁𝘀 𝗼𝗳 𝘁𝗵𝗲 𝗽𝗿𝗶𝘃𝗮𝘁𝗲 𝗰𝗿𝗲𝗱𝗶𝘁 market. While the first major refinancing cycle since the end of ultra-low rates is driving demand, it has become increasingly unclear whether investors are still being adequately compensated for risk. We feel well positioned having avoided the more plain-vanilla part of the market and see an 𝗮𝘁𝘁𝗿𝗮𝗰𝘁𝗶𝘃𝗲 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝘆 𝘀𝗲𝘁 𝗳𝗼𝗿 𝗲𝘃𝗲𝗻𝘁-𝗱𝗿𝗶𝘃𝗲𝗻 𝗮𝗻𝗱 𝗰𝗿𝗲𝗱𝗶𝘁-𝗳𝗼𝗰𝘂𝘀𝗲𝗱 𝗵𝗲𝗱𝗴𝗲 𝗳𝘂𝗻𝗱𝘀 with flexible mandates.
4. 𝗔𝗜-𝗱𝗿𝗶𝘃𝗲𝗻 𝗱𝗶𝘀𝗿𝘂𝗽𝘁𝗶𝗼𝗻 𝗶𝘀 𝗮𝗻𝗼𝘁𝗵𝗲𝗿 𝘁𝗵𝗲𝗺𝗲 𝗴𝗮𝗶𝗻𝗶𝗻𝗴 𝘁𝗿𝗮𝗰𝘁𝗶𝗼𝗻 𝗮𝗺𝗼𝗻𝗴 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘀𝘁𝗶𝗰 𝗮𝗻𝗱 𝗱𝗶𝘀𝘁𝗿𝗲𝘀𝘀𝗲𝗱 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀. While it is still too early to call the winners and losers in tech and software LBOs, most investors we spoke with expect increased bifurcation. Equity and credit holders will see losses — but in our view, this could become a particular issue for credit markets, where avoiding losses is everything.
5. 𝗔 𝗽𝗲𝗿𝘀𝗼𝗻𝗮𝗹 𝗵𝗶𝗴𝗵𝗹𝗶𝗴𝗵𝘁 𝘄𝗮𝘀 𝗵𝗲𝗮𝗿𝗶𝗻𝗴 𝗕𝗮𝗿𝗶 𝗪𝗲𝗶𝘀𝘀, 𝗳𝗼𝘂𝗻𝗱𝗲𝗿 𝗼𝗳 𝗧𝗵𝗲 𝗙𝗿𝗲𝗲 𝗣𝗿𝗲𝘀𝘀, speak about journalism, politics, and the importance of constructive disagreement. The fact that major hedge funds chose her as a keynote speaker is, in my view, a very positive signal.
Curious to hear what others are seeing in the market and how they are positioning.
