September 10, 2025 • 55 mins
On this episode, Shiv Narayanan interviews Andy Lund, Managing Director and Global Co-Head of Primary Capital Advisory at Houlihan Lokey, to discuss strategies for private equity firms navigating today's challenging fundraising and liquidity environment.
Andy shares insights on how GPs can differentiate themselves in a crowded market, leveraging tools like secondary transactions, continuation vehicles, and direct investments to address LP liquidity demands. He explores the impact of macroeconomic shifts, including geopolitical uncertainties and tariffs, on M&A and fundraising, and highlights the growing importance of operational value-add and AI integration to drive enterprise value.
The conversation also covers the evolving dynamics of the private equity landscape, from the rise of next-gen firms to the challenges faced by mid-market players, offering practical advice for GPs aiming to thrive in a competitive market.
The information contained in this podcast is not intended to constitute, and should not be construed as, investment advice.
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Transcript
Episode Transcript
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(00:00):
Hey everybody. Before we jump into today's
episode, I just want to point out a few ways in which you can
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(00:21):
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(00:42):
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(01:03):
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(01:26):
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(01:47):
www.hassas.com where you'll get a lot more information in terms
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And with that said, let's get tothe episode.
Enjoy the show Come to the Private Equity Value Creation
podcast where we interview leading investors, operators,
(02:09):
bankers and advisors to help youanswer one question.
How do we increase the enterprise value of our
companies? My name is Shiva Narayanan and
each episode I will dive deep with a guest to help you become
a better value creator and. Capital.
Allocator. So with that said, let's jump
right in and let's get started with today's episode.
(02:31):
My guest today is Andy London. He is the managing director and
global cohead of the private funds group of Houlihan Loki.
And Houlihan Loki is a householdname that's one of the biggest
investment banks in the firm. In fact, they've done more
transactions and pretty much everybody globally across the
last few years. And what was great about the
conversation with Andy is that he specializes in working with
(02:53):
GP's to navigate all their different options and
fundraising options across secondary and primary
investments and all the other types of vehicles that are
available to get through, especially in the current
macroeconomic environment and uncertain waters that a lot of
GP's find themselves in. And what I really enjoyed about
the conversation is Andy brings a ton of perspective on how to
(03:15):
think about fundraising, what LP's are really looking for, how
to navigate things in the world with AI and how to really
differentiate yourself as a private equity firm.
How to look at DPI and IR and all these different things that
really make LP's invest more into private equity funds and
how to really position yourselves in this type of a
(03:36):
market. So it's a really great
conversation. And because of Andy's expertise
and experience here, we took theconversation in a bunch of
different directions from the political side of the world to
how the financial markets are moving and just the historical
context and how how funds need to be thinking about their
future in this type of a market.So I encourage you to listen to
the conversation and I guaranteeas you kind of thinking about
(03:58):
your private equity firm and your fund and how to return
liquidity to LP's and a bunch ofthese other topics that I'm sure
are happening inside your firm, you're going to learn a ton from
it. So with that said, I'll leave
you to it. Enjoy the episode.
All right, Andy, welcome to the show.
(04:18):
How's it going? Going very well and thank you
for having me. Very glad to be here.
Yeah, excited to have you on. Obviously Houlihan Loki is one
of the biggest investment banking firms out there, but
would love to kind of hear your particular role and what you're
focused on and, and then maybe give an overview of the firm and
and the ways in which you help customers or your clients and
then we can take it from. So, yeah, I'm Andy Lund, I
(04:43):
Cohead, our primary capital advisory business, which is
essentially A fundraising platform within Houlihan Lokey's
capital solutions organization. Essentially we raise the the
funds for private equity firms, whether it's the first fund, the
success of fund or adjacent fundthat that's our main role.
(05:07):
And then closely aligned with that without within all sort of
business world, we have a secondary platform both on the
LP side. So LP is a liquidity, liquidity
constrained looking to sell out positions and also we also act
for GP when they're trying to GPLED continuation vehicles, which
I'm sure we'll touch on is all the rage at the moment.
(05:29):
Other adjacent businesses, we have the leading GP stakes
advisory practice. So for mid market firms looking
to liquidate perhaps 20% to a select group of investors,
that's a very hot market at the moment and and we cover that and
we also have a new business which focuses exclusively on
(05:50):
direct investment. So investors who want to just go
into the deals themselves versusgoing through a fund.
And so with that, in our little world at least, we think we've
got a set of businesses that arevery relevant to the GP client
at any stage of their life cycle, whether it's the first
fund to get them into business all the way through be a GP
(06:13):
stake for perhaps succession planning and everything in
between that we think we bring in more strategic angle to the
party. I mean, Houlihan itself you
referenced is a, you know what it is today 13 billion market
cap behemoth, which focuses exclusively on the mid market.
So we don't necessarily make thefront pages because our deals
(06:35):
are relatively small, you know call it 2 billion EV and below,
but obviously that market has far more deals.
And so we're super active and asa result of that very active
with sponsors in that cohort of deals.
So very sponsor centric mid market focus bank on the M and A
side also a leading restructuring practice, a
(06:57):
leading valuation and analysis practice.
So kind of all weather bank, if you will.
You know if times are hard, we've got restructuring and when
M&IM&A's on a fly obviously got the the leading practice there.
So yeah, you know, very interesting platform.
Yeah. And and specifically for your
role, like where would you say your time goes the most or which
(07:17):
types of areas are you really focused on inside of land Loki
where you're working with private equity investors, their
firms and their portfolio and he's.
Yeah. So we really focus exclusively
on private equity and growth equity managers.
We do a bit of credit, bit of infrastructure, but our real
(07:37):
core focus is on is on private equity.
And I guess that any one time wemay be advising up to say 15
clients of different shapes and sizes.
Our, our business is located geographically across the US and
Europe with some footprint also in Asia and the Middle East.
But but essentially the majorityof our business is
(07:58):
transatlantic. And so at any one time, 15 GP's
probably skewed more to the US, maybe 60% US, 40% Europe.
And what we look for is a real edge, a real speciality.
Um, you know, in a world where Idon't know how many GP's there
are in the environment, in the market environment today, but
there's thousands all say they're unique and highly
(08:20):
differentiated. You know, we really look for
those that can really credibly claim to have an angle or an
edge, because that's what's needed to, to clear the market
in this environment. So, so yeah, it's, it's, it's
buy out managers and it could bedifferent maturities.
We're, we're happy to get someone into business on day
one. They may have run out of a
bigger firm and this is our first fund all the way through
(08:41):
to more mature managers where they're looking for a select
more tactical mandate, maybe a different type of investor or
investors in a different geography to augment their
existing investor base. So we could be very flexible
with how we advise our clients. And talk about where you're
sitting, because obviously the market dynamics have changed now
versus in the last few years. So where, what types of
(09:03):
transactions, what type of fundraising or areas are you
helping these these fund managers with?
Like where are you seeing the focus shift to?
Obviously, you mentioned GP stakes, the secondary market,
but just shed some light onto where the market is today and
where the opportunities are. Yeah.
I mean the market on the primaryside at least has, has been
extremely tough, right in the sort of talk, talk about kind of
(09:26):
post financial crisis, post finance crisis up to sort of
COVID, you know, the, the, the private capital markets were
relatively robust. Fundraising was recovering from
GFC. There was an abundant amount of
leverage. It was really low cost and so
lots of deals were getting done and the kind of flywheel worked
(09:48):
pretty well. I'd say post COVID, you know,
the markets changed dramaticallyas we know, right?
There's, there's far less leverage about, it's more
expensive, there's more geopolitical shocks and life
just become tougher. And as a result of that, the
fundraising market has had to, or GP's have had to adapt and,
(10:10):
and as part of that, the fundraising market has, has had
to adapt. And so, you know, most LP's now
feel like they're more in control than they were.
They have the cards and most of them have become very
transaction transactional in nature.
So it's not just about getting access to a given fund.
They want to have access to a fund with their commitment, but
(10:33):
would also like to see perhaps some Co investment along the way
or maybe a secondary to, you know, to to make it more
appealing. And so it's just harder to
attract those commitments. And at the same time, because
the world is a different place and a lot of GPS and nursing
large unrealized portfolios, they haven't been able to give
(10:56):
the money back as quickly as perhaps the model suggested.
The LP's have got a much bigger diligence job.
You know, they're now looking ata large number of portfolio
companies, some that were boughtthrough that 18/19/20 hubristic
period where valuations were pretty high.
And they're trying to work out, you know, whether these assets
are actually any good. And so, you know, as a result of
(11:19):
that, and because diligence is safely longer and there's less
liquidity, generally, fundraising processes are taking
much longer and not everybody's getting funded.
And so, you know, we are in a bit of a liquidity squeeze right
now. And I think even though the
market has recovered in the last12 months, it's still pretty
tough out there. And so as I described, you know,
our business has different levers that we can pull when we
(11:41):
start a fundraising assignment even for a good manager or a
manager with good performance and we put it that way, there's
still a good likelihood that some of their existing investors
in the prior fund have issues. And so we'll already start a
conversation about how we can perhaps help unlocks and
liquidity via secondary in a market like today where there's
very limited M and a activity continuation vehicles, GP led
(12:05):
processors are another way that a PGP client can, can give some
money back whilst holding on to the assets.
And so those are something we can help with.
And so it's, it's just about using all the tools in the
toolkit in a very creative and strategic way in order to try
and move the process along. You know, that's what's really
changed. It's it's, it's just become much
tougher. Right.
(12:26):
Yeah, I, I, I definitely see that with a lot of the private
equity firms that we work with that they're working on fewer
transactions, secondary investment is something that
they're they're looking at more talk about.
Just this piece on the LP side, Like how much pressure are these
firms facing to generate liquidity?
Because some of these funds likeif you're it's 2025 now and
(12:46):
let's say you raised a fund in 2021 and then you bought a
company at a high valuation and it's time to potentially return
some of that liquidity back. But the market to sell the
company isn't there. So how high is that demand from
LP's to find some of that liquidity to return the fund
right now? Yeah, yeah.
So, so yeah, there are a number of metrics that are used in in
(13:07):
in our world, you know multiple of invested capital, IRR and
then this term DPI distributionsto paid in capital.
That is that the latter is what everybody is looking at.
How much money are they getting back and when are they getting
it back? I saw, I think it was a Bane
report that had some analysis that showed that in 24 liquidity
(13:31):
is a percentage of the overall buyout NAV.
So the unrealized portfolio across the entire industry, the
liquidity was 11%. So that indicates that it's
gonna take at that rate 10 yearsto get your money back, you
know, which was not, which was not what LP's were promised and
certainly not what their models would, would, would, would,
would geared up for. So, so it is a real liquidity
(13:54):
crunch at the moment. You know, it's that sort of pig
in the Python put crudely and and so if you're GP that can
show that you are still able to get liquidity back to LP's and
drive that DPI metric, you know you will go top of the class.
And in fact, if you can do that via regular way sale, which even
(14:16):
in the difficult market is stillhappening right here, there's
still activity on the M and a side that would also indicate
that you've got good assets thatare, you know, able to sell in
difficult times. And so again, it's another, it's
another that of the, you know, marking your favour.
That's why if you can't get an exit in a normal way, you know,
(14:37):
continuation vehicles, there arekind of natural alternative.
But but yeah, liquidity is the key driver at the moment and and
it's what's causing a lot of issues for people.
The other thing is in certain styles of investing.
So think about hyper growth tech.
You know, back in 1920 that was a very, very buoyant market.
(14:57):
Lots of capital raise, lots of capital deployed quickly that
then justified even bigger fundsnext time around because the
fund was deployed in two years, not five years.
So that justified a an accelerated pace.
And you know in in hindsight it looks like a kind of hubristic
end of a cycle type of phase, which it probably was.
(15:18):
The question is if you're buyingassets at those very elevated or
inflated prices and assuming that you were gonna get your
money back via an IPO, for example, and the IPO market is
completely dried up. You know what is going to happen
to those assets which have now been held on 80s in GP
portfolios for for a number of years.
(15:39):
And so these are the sort of concerns that LP's are challenge
with. That's why they're spending so
much time in their diligence phase really understanding
whether these assets actually have any intrinsic value
visibility, what the entry pricewas just given the new normal
that we're in. I think the other part of it is,
you know, if you think about some regular way private equity
(16:00):
strategies, you know, buying an asset, adding a bunch of
leverage, which is basically, you know, very low cost,
probably not free, but very, very low cost.
And then, you know, holding it for a few years, even if you
make some improvements. There was a, there was a pretty
boy, an exit market where you know that mortal worked.
And in today's environment whereleverage is far harder to get
(16:20):
hold of and it's more expensive,yeah, there's a lot of questions
just about the efficacy of that basic kind of financial
engineering. And so the current scheme that's
on again, every LP's lips is operational value add.
Are you a GP that can the vibe in this market?
Does the model actually work andstill deliver the sort of
(16:41):
returns that private equities promise, which is, you know,
through time of your money net and ±20% net returns that that's
that's the game right now. And so that's kind of why at the
moment there's a whole swath of the private equity market, you
know, which proudly you could call, there's this term jam
(17:02):
Boff, just another mid market buyout fund.
Now that there are many of thosein existence, right?
Which did perfectly well in the good times.
And the question now is, if you're a sort of middle of the
road generalist private equity firm, maybe a bit long in the
tooth, some older founders, etcetera, etcetera.
(17:23):
Are you really the, is that really the sort of place where,
you know, LP's are going to continue to support and, and,
and place capital for, for kind of next Gen. investing?
Or are they going to go for, youknow, newer groups who are
perhaps more literate with AI and some of the technical
technology that's underpinning, you know, the world we operate
in, set themselves up so they'remore easy, you know, better able
(17:46):
to navigate sector discipline or, or, or types of deals.
And so we're actually seeing capital moving downstream to
some of the new entrants, some of the more nascent firms, some
of the next Gen. firms where, you know, there's some fizz and
excitement that this is the group that you know, really is a
better option for the next 10/15/20 years.
(18:06):
At the same time, you know, the bifurcation also moves back in
favour of the larger cap firms who continue to do well, The
HG's, the TA associates, the Advents, you know, they, they,
they're returns maybe aren't as good as they used to be, but
they're still pretty good on a relative basis.
And, you know, the kind of, you know, get fired for buying IBM
(18:29):
mantra is very much alive and kicking.
So that bifurcation is very muchpart of today's fundraising
landscape. And, and, and the large number
of firms that are sort of somewhere in the middle, they,
they have some issues to deal with.
Some of them will be existential, I think, over the
coming years. Yeah, first of all, I love that
(18:50):
term, the jambal for Jambo or whatever term, he said.
Because. I got a coffee right there.
Yeah, I love it. I love it because we meet so
many firms on an ongoing basis and it's sometimes hard to
distinguish one fund or firm from another.
And your best firms that we see like we, we keep you associates
is a close partner and client ofours.
And then we have a large list ofPE firms that the ones that are
(19:13):
doing well have a very differentiated position, whether
it's by vertical or segment of the market or industry that they
really focus on or they have a very clear cut strategy in terms
of how they are actually going to generate a return for their
LP's. And then we see on the flip side
a bunch of mid market firms thatdo look the same, that say the
same things chasing the same types of companies and it seems
(19:36):
like generating alpha for those firms would be significantly
harder. And so I guess that transitions
to my next question on the secondary side is even if you
can generate secondary capital as a way to find liquidity for
these LP's, isn't it? Is, is there a form of like
kicking the can down the road? But the problem still exists
(19:56):
because if especially if you bought a company in 2122 and it
hasn't grown, the way that you see the book value of that
company is significantly higher than what its actual market
value today would be. So kind of how do you
distinguish that and how can secondaries be leveraged as a
way to as as a strategic advantage in a market
environment like this? Yeah, I'd say it's two things.
(20:17):
One, if you're talking about secondaries in relation to
assets, so continuation vehicles, yeah.
And I think this is an area thatLP's are also placing a lot of
scrutiny on because like most ofthe the technology is, is pretty
mature now, right. It came out of restructurings
back in maybe the late 2000s post GFC.
(20:37):
Nobody talks about, you know, GPleads were effectively
restructurings back in the day. Now it's an IR tool, it's a
portfolio management tool and and if it's used authentically,
it should be win, win for all parties, right?
Because you have an asset that'salready off to the races.
It's let's say you're fiduciary target for an LP is 3X, right.
(21:00):
A lot of lot of GP's will focus on that sort of metric.
You've got those LP's in your funds saying I need money back
and I need it back now because I'm liquidity constrained.
The M and a market, you don't wanna sell the asset cause you
think it's got, you know, a muchlonger journey where it will
continue to grow, continue to, you know, be be a great result
(21:20):
way beyond say the 3X. That's when you know you can,
you can go to your LP's and say,OK, I can put this into an SPV,
bring in some secondary capital and you, the LP's can choose to
either cash out at 3 or 4 times whatever the, the metric is very
attractive return or you can roll.
(21:43):
You can continue on this journey, right?
We think this could ultimately be on the original investment
plan, a 10X. That's up to the LP to decide
now, you know, industry stats would show in excess of 90% of
LP's will take the money becausethey are so liquidity
constrained. And then, you know, the GP will
be aligned with the next set of investors, those that roll the
(22:05):
lead investor, which is usually always a secondary house.
And then there's potential for some other follow on.
They'll have to roll their carry.
It'll be a big commitment from the GP.
And so again, that will show a commitment from the GP that this
is an asset that they genuinely want to run for another
investment period with the intention of, you know, doubling
their money again or whatever. So, so if set up correctly, it
(22:28):
is a pretty aligned model. Where I think LP's are nervous
at the moment is, you know, can't sell an asset in the open
market. So we'll just do a continuation
vehicle. And then there's lots of
question marks about, you know, what the valuation is, the
efficacy of that valuation, so on and so forth.
And so that will be the challenge will be to show that
this is actually an authentic company.
(22:49):
Yeah. For for this kind of, for this
kind of, for this kind of vehicle.
Yeah, I think the vehicle in andof itself, I understand.
I guess it's more just on the valuation side.
If you kind of on the on the books you have a certain
valuation, you kind of have to mark it down to some degree for
it to be fair in some to actually generate a return.
Do you think that that kind of creates a conflict of interest
(23:11):
in some scenarios? I mean, it depends, right?
So one thing's for sure, secondary investors are some of
the most sophisticated investorsout there, right?
So they want to come in for sureat the best possible mark, which
is why the classic case where itsort of goes wrong is a GP tries
to sell an asset in the open market for say 3X.
(23:33):
Nobody wants to buy it for a 3X and they think, OK, well, we'll
do a continuation vehicle and try and get the same amount.
You know, the first thing is secondary investors gonna do is
look at what the carrying value was for that asset, which is
usually lower than the the pricethat people are trying to get in
the market and say, well, that seems to be the starting point.
And so you're already at an inherent discount that that.
(23:54):
Also, this is a sidebar, you know, so many GP's wear as a
badge of honor in their materials, a page in their deck
where it shows all the realisations over time and it
shows what that asset was valuedat two quarters before exit and
what it actually was exited for.And what they like to say is
(24:16):
the, the, the uptick of value onexit is, you know, very high
number and increasingly LP's thesame.
We don't want to see that. We don't want you to say that
you're very conservative in yourvaluations.
We'd much prefer a few or more accurate in your valuations.
Like it's nice to have a luck take, but it doesn't have to be
85% or something egregious. And again, if you think about
(24:36):
the secondary scenario, if you're, if you're deliberately
being conservative with your valuation on the marks, that's
just hurting you right away as you start negotiating what the
what the transfer of value should be.
There are ways around it. I mean, you know, Houlihan has
got an enormous division that does all sorts of, you know,
wide range of valuation services.
(24:59):
It's one of the lead evaluators for continuation vehicles in the
market today. So having an independent
fairness opinion on the value obviously helps.
The other thing you can do is you know, you can create
situations where you partner with let's take TA associates,
you know, very, very blue chip name, highly credible GP.
(25:21):
If you were to set up a a structure where someone like a
TA associates was to take a leadposition in your asset, but
leave enough so you could build a continuation vehicle around it
and effectively therefore continue to Co invest alongside
A sponsor like tier associates. Clearly no one's going to argue
with TA associates valuation because, you know, they are
(25:42):
considered to be best in class. And so that that means that the
you know, the secondary investors kept honest because
they have to go along with the, you know, the market clearing
valuation. So there's kind of ways you can
structure this that so so you make it, you know, fair for all
parties. But yeah, I agree with you.
If there's a feeling that you are basically putting it in a
(26:02):
continuation vehicle at an egregiously low value just so
you can kind of continue a leg of the of of the journey, it
could potentially be very misaligned with your investors,
you know, in the fund that it comes from.
Having said that, they can stillroll, right?
They have the option to roll. They don't have to sell.
It's only up to them, as you know, it's, it's their decision,
(26:22):
you know, whether they want to sell or not.
Would you say that there is a orI guess different phrases, do
you, are there a lot of P funds that are kind of in, in trouble
because of this valuation mismatch or they have assets
that are kind of stuck and they're struggling to find
liquidity? And because we've seen some PE
farms kind of go under where they were super active 5-6 years
(26:43):
ago and they were one of the names in the market and now
they're not existent because they weren't able to kind of
return the funds. So I'm just curious like how you
see the general PE market and the lot the the future of a lot
of these funds? Yeah, I think that that is a
bigger question and one that I, you know, my own thesis is we
are in the early innings as a result of this change dynamic of
(27:03):
a real shake up in the industry I think.
And it takes a long time for this to really come to the
surface, but there are many firms that free COVID, we're
doing extremely well. They'd have very successful
fundraising, which is, you know,1 barometer for fund health, big
support from investors. They then perhaps didn't invest
(27:24):
so wisely, maybe got a bit hubristic, raised too much
capital too much too quickly, maybe some bad decisions, maybe
some bad luck along the way. And now they have very large
unrealized portfolios with some assets that are in real trouble.
They, the investors are not re upping for the next fund and
therefore new investors are saying, well, hang on a second,
(27:46):
what's going on here? If the existing aren't coming
in, why am I so lucky? And so the whole thing gets
stalled and delayed. That then causes internal
tension, particularly for, you know, perhaps some of the, you
know, partners on the foot in the firm who might have had very
successful investments, but their performance is getting
(28:09):
diluted by others. And so they're now looking at,
you know, potentially not getting carry or, you know,
their compensation is not going to be what they thought it was
going to be. And as the fundraising market
recovers and certainly with the pivot towards kind of next Gen.,
this is a time when maybe you know, some of those not managing
(28:29):
partners and the firms, but nextlevel down, I think, well, this
is maybe my moment in the sun. Why am I going to recommit to a
firm that's essentially in trouble when I can leave with my
track record, which is very goodand go and set myself up.
And so we're seeing a lot of that activity and it is a net
result of that. You have firms that have lost
talent, a skilled with fundraising and have issues in
the portfolio. And you know private equities
(28:52):
are very unforgiving asset class, right that that could be
an existential moment for some of these firms.
And in fact what we're seeing, Imentioned we have this direct
equity business. The reason that's a really
interesting tool is, you know, historically that capital was a
sort of get you into business type tools.
So somebody's thinking about thespin out of a firm, they want to
(29:14):
do their first few deals to get a track record together.
And so they raise money on a deal by deal basis, build a
track record and then they raisetheir first fund.
You know, increasing this directcapital is being used for that
for sure, but also to prolong the life of a or allow
investment activity to continue beyond the end of the fund life
so that the fund can actually crystallise a bit more value
(29:37):
before they go back to market for the next 1.
So that's, and this is for funded sponsors and also just to
do, you know, if you're doing deal that of your fun, but
worried about that fund drying up, you might wanna tap that
direct market just as a, you know, an additional source of
capital so that you know, you'reyou're you're extending your
(29:57):
funding a slightly different way.
So again, it's a very useful tool that's being tapped as much
by funded sponsors as independent sponsors, which
which is an interesting dynamic.Yeah.
I guess in this type of market, one of the things that we've
seen is that I see more lower middle market firms performing
well. And I've heard from a lot of
smaller firms that they're actually doing quite well
(30:20):
because historically the privateequity dollars that went to
larger firms, they weren't interested in writing smaller
check sizes. And there, there are all these
quality assets that have had lesser competition simply
because people want to deploy more capital and now they're
seeing a lot of funds actually move down market to try to chase
(30:40):
smaller assets. And that kind of goes along with
what you're saying. So just curious just in terms of
making these firms be more successful long term, are you
seeing that trend as well where larger PE firms where maybe they
wanted to write 100 million pluscheck sizes are also chasing
some of the smaller companies? Well, I think, you know, most
private equity firms have the ambition to grow in one way or
(31:04):
another. And so for sure, you know, one
way of growing your overall a UNonce you got to a certain scale
is to is to, you know, raise a series of funds, whether you
call it, you know, the heritage fund or or whatever.
But essentially it's a, a go back in time type strategy,
(31:24):
right? So if what tends to happen is it
Roman numerals 1-2 and three tend to be the most productive
funds, right? That's the smaller deals.
That's where hunger and hustle is.
Perhaps that it's, it's maximum level and and so performance
tends to wane overtime as funds get bigger.
And so 1 clear narrative and strategy is to say, look, we're
(31:47):
going to create a pool of capital that that allows us to
go back and capture those types of deals, the ones that we did
very well back in the day, whichincreasingly were not able to
pursue now because we have a flaw given the size of our
funds. And so those kind of heritage
funds are very much alive and kicking.
I'd say, you know, it's less common for an established mid
(32:09):
market fund in the US, let's say$2 billion to suddenly start
targeting small deals within that within that fund structure
because you know, it, it starts messing with the metrics.
You know, you only want to do a certain number of deals.
You've only got certain amount of people to run those deals.
You know, if you take it to the enth degree, no matter how
(32:29):
successful a small deal is in that context, it becomes a bit
of a rounding error, right? You know, if you're 5 million
investments are 10X, but you'll tend to be investing, you know,
50 to 100 equity tickets, you know it, it doesn't make any
sense. And that's why people or GP's
who want to grow the platform carve these out into special
specific vehicles. At what I do think though, to
(32:52):
your point is, and I sort of mentioned it is as LP's are now
thinking about what to underwrite going forward, you
know, what's going to succeed inthe current market environment,
which I think is going to changeanytime soon.
They are increasingly the biggerallocators are increasingly
being drawn down market to smaller funds because that's
where they believe the true alpha lies.
(33:13):
That's where they believe you have more companies, they have
more ability to affect change with those companies, you know,
they're less formed. And so I think the, the real
hunting ground and this is wherewe spend a lot of our time
raising capital is to find groups that have, you know, a
very specific niche expertise sector, deal type, whatever.
(33:36):
We've also got a credible operational capability.
Every GP says they've got operational capabilities, but
these, you know, certainly not all created equal.
If you've got a team of people on your payroll who are
dedicated operational assets, you know, best in class, former
consultants, etcetera, who are, you know, helping with the
diligence and sourcing and then the, you know, initial value
(33:58):
creation phase. That's a major plus compared to
a lot of GP's who still, you know, claim they have that, but
it's more sort of like, you know, outsourced, retained, you
know, advice. And so, and then you put the,
the, the overlay of AI, which isa question I would think a lot
of GP's are wrestling with at the moment.
(34:18):
You know, how how is AI affecting how you run your firm,
how you invest? I still think GPS need to
quickly find good answers to that question.
Some are some are very much on the forefront.
They are, you know, setting their own GP's up in a very
professional way. You know, using AI to, you know,
radically improve the productivity at the GP itself,
(34:41):
just like you would expect at one of their portfolio companies
are using AI to massively enhance sourcing.
I mean, we're using it a Houlihan.
It's a huge push to to use, you know, their own proprietary AI
systems for sort of monitoring the M and a market and also
capitalizing on the immense amount of data that we have in
our, in our firm. Just like every private equity
(35:04):
firm has a momentum amount of data that you can use, you know,
figuring out the systematic replicable value creation
patterns, which is what an Lt. wants to see.
So, you know, Berlin a month or so ago, go for the Super return
conference, there were some GP'sthat had really credible answers
to that question and were, you know, that the conversation
became very animated and it's what the LP's, you know, what
(35:27):
are hoping for. But there's plenty of managers
that really still look a little bit rabbit in the headlights
when this topic of AI comes up. And that's something the
industry's gotta improve on dramatically.
So, so talk about that piece a little bit, because we hear from
almost every investor that we work with is something that's
top of mind. Their portfolio companies want
to figure out how to leverage it.
They're being affected by it by generative surge, maybe MQ's and
(35:49):
pipeline is down because a lot of traffic at the expected from
let's say paid media or SEO is going to some of those
platforms. And then even on the
technological side or process side, you gotta figure out how
to leverage AI to drive enterprise value.
So I'm just curious in terms of how you're seeing with LP's and
these GPS, how much are they thinking about AI and what are
(36:09):
some of the things that are working or areas where they're
really focused? Yeah, I mean, and look, it,
it's, it's it's like everything.LP's can ask questions on any
subject and they have their own,you know, they, they always want
to hear the right answers and it's, it's difficult.
It's a challenge right for for GP's to, to, to, you know,
continuously please on on all fronts, particularly in a topic
(36:30):
like AI, which is still thoughtsdeveloping.
I think the obvious areas are sourcing, right?
You know, using some kind of um,AI related data strip that makes
complete sense and you know, just gives you LP's don't
believe the term proprietary sourcing anymore.
(36:51):
Generally, right? And GP still talk about it a
lot. And then you read the small
print and you know, Asterix, Asterix at the bottom of the PPM
page and you realize that a proprietary source deal is an
auction that only involve 4 players, right or whatever.
I mean, it's, it's, it's sort ofnonsense because private
equities become commoditized, right?
That's, that's the challenge at the moment with, with leverage,
(37:13):
which is not over, you know, excessively priced, it's just
modestly priced. It's what it was in the early
2000s. But back in the early 2000s
there were far fewer players andnot everybody heard of private
equity. So there was an arbitrage
opportunity. So you know, trying to access
deal flow on a preferred basis is one of the key challenges for
any PC firm. So if you can use AI to augment
(37:36):
that, you know, you will marginally put yourselves ahead.
So I think that's one big area that's pretty obvious that a lot
of GP's are looking at. And the other piece, as I said,
it's, it's, it's trying, you know, what a, what a, what an LP
wants from a private equity firmis, is consistency.
They want to see this replicable, replicable approach
(37:56):
to value creation, a playbook where maybe there's some
missteps along the way. In fact, in some cases it's
quite helpful to have a case study about, you know, what went
wrong, why, what did we learn from it?
If you don't have that, you're just waiting for the time when
you're going to have one of those.
And so that's what LP's are looking for, that replicability
strategy and, and also, you know, pivoting to, to, to, to
(38:20):
the sort of world that we're in.And so I think what they're
looking for now is a, is a sort of AI component to that.
You know, how are you really analyzing what you're doing to
these companies? So you are maximizing every
single shred of value that you can get out of them, which is,
you know, that activity has never been more important when
you can't rely on leverage or orrising markets, you know, to to
(38:45):
to help generate the returns. So and that's the bit I think
this far less developed because it's developing so quickly.
Yeah. One of the things that I've seen
is that a lot of P firms don't have a clear perspective or
process on how to drive enterprise value creation with
AI across all the domains of value creation, whether it's
(39:06):
pricing, sales, efficiency, marketing, which is a lot of the
work that we do, even just product or just general go to
market and positioning and thosekinds of things.
So I think that that's an area where there is a ton of alpha to
be found because it's very rare to come across a the firm that
has that process fully built outin all the value creation levers
(39:28):
that they can deploy across all their portfolio companies.
And then on the sourcing side, I've seen a lot of firms like we
talked about this Jambox conceptthat you said they look and
sound the same and not enough firms are putting in that effort
to distinguish themselves actually source deals uniquely
or position themselves in a way that an asset out there will
(39:49):
choose them over the ten other PE firms that are interested in
that assets. So can you talk a little bit
about that? It's like, how can these be
firms really distinguish themselves to win more deal flow
and how much selfies care about that?
Yeah, that's another good point actually.
Well, by the way, just going back to the Jambox point, which
I, I'm, I'm anybody I fear I'm going to regret using that term.
(40:10):
But anyway, I, I definitely don't mean it too much in a
demeaning fashion. Look, a lot of that cohort are
have had to rely on in order to continue to sort of survive,
they they've had to rely on giving away an enormous amount
of fee and carry free Co investment.
So that's the model. You know, they, they have
transactional LP's who've remained loyal because in some
(40:32):
cases for every dollar they've invested in the fund, they're
getting one or multiples of thattheme carry free in deals.
If you do that blended return, it's not, it doesn't have to be,
you know, it doesn't have to be a great deal to still yield a
very good net return, right. If you think about, you know, a
higher fee situation, gross to net spread.
So you know, that's the way a large component are are sort of
(40:55):
playing the market at the momentand it, and it sort of worked
for them as it relates to, you know, where the market is going
in next Gen. I you know, I don't think that's
enough. It's more like a, a sticking
blast or a Band-Aid, you know, for, for, for times when they,
they struggle to raise capital. You know, what LP's want now is
something that is set up for thefuture.
(41:17):
I'll give you an example again, in a world where everyone says
they're unique and highly differentiate it.
You know, we, we, we raised the fund for some former colleagues
of mine from, from Advent in, inEurope called BD Capital.
Now you can believe this model or you don't or you don't right
(41:37):
it, but but what I would say is their model is different.
And So what they have is half the team is investment
professionals, you know, very credible investment
professionals, typical private equity type people.
And the other half is made-up ofmid cap CEOs who you know aren't
necessarily name brands, but in a specific sub vertical.
(41:59):
They will be very known people, but more importantly, they know
what it's like to run a company.They know what it's like on a
Sunday night. It's a lie in bed worrying about
sales figures or new product launches or whatever.
And what they don't want on the Monday morning is a spreadsheet
from a young, you know, associate at the tea firm
saying, Hey, can you just fill in your weekly reports because
(42:20):
we want to sort of go and do some, you know, spreadsheet
jockeying back at back at the back at the shock.
They want someone who's going tohelp them solve those problems.
Who's who's who can empathize with the issues associated with
running a business. And So what BD of being very
successful in doing is, is finding deals where very quickly
(42:41):
the management team, you know, whether it's the founder or a
professional management team that's been installed, really
gravitate towards them as a GP that they feel they can partner
with. Because they don't think it's
just a bunch of kind of financial engineers, you know,
smart Wiz kids consultants who are just trying to spreadsheet,
you know, treat their business as a spreadsheet exercise.
(43:01):
Of course there's some of that that goes on, but it's more the
the feeling they can sit and talk to someone who's run a
company and done the same, you know, succeeded in the same
challenges they're trying to overcome.
So that's very powerful. And I think, you know,
increasingly, again, with this kind of focus on operational
aspects, more and more GT are trying to figure out how to sort
(43:24):
of build that capability. It's complicated, right?
I mean, it, it, it is, it is a, a different psychology,
different philosophy, philosophyto as an investment
professional, suddenly bring in operating people and treat them
at the same sort of level. You know, that that's not
necessarily being the, the LP model.
And so again, I think it's part of this sort of this change of,
(43:46):
of, of, of, of methodology that we're seeing, you know, as a
result to, to the challenging, you know, market environment we,
we sits in, but but that will unlock deal flow, right?
That is genuinely a way of, of, of, you know, having a
conversation with a prospective target that that immediately
then where you immediately have some, um, some currency versus
(44:09):
just being another provider of capital and it's all about
pricing. Yeah, 100% agree with that.
I, I definitely think that that is one of the future iterations
or evolutions of private equity is having resident experts that
have actually run companies and are operators and CEO's or
revenue leaders or marketers that have really been there and
(44:30):
done that to actually support these companies.
Because that is a differentiatorthat to create alpha in a
marketplace of PE fund that is kind of running it with just
analysts or MBA graduates versusone that has operators.
The one with operators is far more likely to win.
So I, I definitely, definitely agree with that.
One last question before we close things off.
How do you think about the macroeconomic environment and
(44:54):
just political geopolitical landscape and the tariffs in the
US and and how is that affectingthe market for investment in
private equity firms? Yeah, I mean, look, I, it's,
it's a, if I had the right answer to this, I could
probably, probably did pretty well in life very quickly.
I, I think there's a few things going on at the moment.
(45:16):
And you know, the general commentary, I go back to Berlin
a month or so ago, right, which is a good barometer for the
industry. It was after Liberation Day that
was one of the main topics was you know, how are these, how
these tariffs affecting things. You know for sure it has created
a pause in, in the M&A environment because you know,
(45:39):
until you know, I'll have bettercertainty about the direction of
travel of some of these tariffs,you're just gonna go on hold,
right. I mean, that's just the way the
world works. So 2025 was supposed to be the
year of the exits. It was trying to get that pig a
little bit further out the place, and that's clearly not
going to be the case. Having said that, some of the
(46:02):
other commentary as a result of Liberation Day was that, you
know, Europe is going to be a big beneficiary.
You've had some of the big guys say, you know, we're all all
over Europe now. I think Blackstone, KKR have
gone on record saying we're gonna deploy more, much more
capital into Europe. That may be the case.
The flip side is, is is, you know, the feeling is that LP's
(46:22):
were also going to spend more time looking for European
managers than perhaps the US because there was a feeling
that, you know, the US was just in some self induced disarray.
My sense is it's not going to change things.
The US is still the dominant private equity market.
It's showing you can pick any moment in time the returns
(46:43):
outperform anywhere else on the planet.
You know, there are plenty of political risks, there's
currency risk, there's labour law risk, there's all sorts of
risks across Europe and other obviously other parts of the
world which, you know, the US doesn't have.
So we did a survey which was published literally the week
before Liberation Day, which obviously rendered it completely
(47:06):
useless even though it was pretty detailed across, you
know, 140 LP's. Um, the question about
geographic preference was, was dominated by the US 93% of the
respondents said that the US wasgoing to be their first choice.
Europe, I think was like a 60% second.
So will Europe move up a little bit?
(47:26):
Yes, probably. And the US will maybe decline a
little bit, but it's still goingto be the dominant market in my
view. And I think, you know, everyone
sort of gets how Trump is playing this right.
He, he, he is creating some volatility along the way.
He's actually doing what he saidto everybody he was gonna do.
And, and so far, you could argueit, it's, it's sort of, you
(47:48):
know, people, people are marching to his tune.
And so I, I think this will all kind of sort itself out.
Let's remember your average private equity for fund is
longer than your average US marriage, right?
People talk about 10 + 1 + 1. I think it's more like 17 or 18
years, which is why the whole fundraising process is, is
proper courtship, right? You are trying to induce
(48:09):
marriage. And so, yeah, we could all talk
about what the next 1218 months is going to bring.
But actually, you know, these funds are in for a much longer
period. And so I, I think the US is
still going to be a key target for the rest of, you know,
geopolitics. Who knows, right?
I mean, we've never been in the most more unstable environment.
There's some trends that are appearing as a result of that.
(48:31):
Europe's got a lot of defence funds popping up left, right and
centre, European resilient funds, etcetera.
Again, who knows, right? You know, that that's all on the
back of, of, of the US position visibly NATO, but that could all
change very quickly, right? You know, the US could easily
come back and say, you know, forwhatever reason, we're gonna,
(48:53):
you know, give you more support if they start seeing the sort of
movement that they were requesting.
And I think there's still a hugehill to climb in terms of
private capital filling a funding gap for defence, right?
There's all sorts of restrictions.
There's a lot of chatter about it making sense and being a good
idea, but I think we're a long way from from that actually
rolling out in, in in a very short term proactively and into
(49:17):
funds. So look, there's, there's a lot
of sort of always in, in the world.
I, I would say one thing, you know, it seems that while for
sure the M and A market has, has, has has slowed as a result
of this. You know, that market does not
like uncertainty. You know, the, the, the, the
certainly from Mark where we siton the, on the fundraising side,
(49:37):
you know, what was a fast recovering market continues to
have a strong pulse. I mean, it's in rude health and
we're seeing everything that we have on our platform get funded.
Whilst LP's are really challenged with liquidity,
they're also finding ways aroundit.
You know, it maybe they just consider, you know, continue to
not invest in their historic relationships because they,
(49:59):
they, they move on and that suddenly frees up commitments
for new relationships. Again, the P world's quite
brutal like that. And so I'm actually cautiously
optimistic about how 2025 will turn out.
I wasn't immediately after Liberation Day, I thought it was
all going to come screaming to ahalt.
And I think as, as this year rolls forward and some of this
(50:22):
sort of tariff noise either either the little bit, you know,
I, I, I, I think we may get backon a trajectory which you know,
which we were on at the start ofthe year, which was actually
pretty positive. Hmm.
When do you anticipate things kind of picking back up just
from your perspective because a lot of people funds are kind of
worried, worried or wondering about that like when will
(50:43):
activity levels or the amount ofsupply out there will change and
and what the what the horizon for that kind of looks like?
Yeah, it's, it's really difficult to say.
I think what's what's for sure is private equity duties are
monomer nightly focused on finding a way to create
(51:05):
liquidity for LP's. They have that message loud and
clear. They also have a huge amount of
dry powder that's just sitting there on the shelf.
And so, you know, one thing thatprivate equity has shown time
and time again through multiple cycles used dislocations, you
know, it's shown that they can adapt and in certain cases
(51:27):
thrive. And I think, you know, I, I do
think that will be that that will be the, the outcome here.
There will be a way through. And I think if you were to roll
the clock forward and have this conversation in the year's time
and some of the topics we've covered, summer adoption of AI,
there will be no doubt that bifurcation or or or changing of
the guard will always continue. It's a pretty brutal industry.
(51:49):
You know, those that do well getfunded, those that don't kind of
wither on the vine. There will be some wither
Withers that are notable because10 years ago they were flying
high. But actually if you do, if you
go back in time and then at least an interesting exercise at
Advent where you looked at over certain time periods who the top
(52:10):
10 firms were, what size they were, 7 and so forth.
And as you looked over those time frames, in some cases, the
same names would be on the sheet.
You know, some of the bigger guys, Carlisle, would rise in
prominence. Others would just completely
fall off the map, right? They just ceased to exist.
And so, you know, we're definitely in a period where
some names will maybe not cease to exist per se, but will really
(52:34):
struggle. And so that's just going to be
part of the shake up that is private equity.
And in a world that's become much more commoditised and
congested, honestly, it the industry probably needs a bit of
that, right, because it keeps everybody honest.
And it, and it means that you know that the, the, the, the
LP's are ultimately being able to be given the choice of
backing, you know, the, the nextGen.
(52:55):
Of exciting small sophisticated LP's that GPS that can can
navigate some of these complexities.
Yeah, yeah, totally agree. And that's a good note to close
the episode on an enemy. If there are investors or GP's
listening and they need help navigating some of this
uncertainty or figuring out how to work with their LP's, how do
they get in touch with you? And then we'll hand Loki to just
(53:15):
kind of see what what their options are.
Yeah, I mean, my, well, my, my, they have my name and their
websites got a link to me. And so happy to have a
conversation with, with, with anybody who's trying to navigate
some of these challenges. And, and I would encourage
anybody if they're thinking about raising capital well in
(53:36):
advance to, you know, speak to someone like me, even if it's,
even though it's free advice they overpaid for, you know,
the, the, the, you know, just understanding what's out there
and the complexity of the market.
I I think is, is already helpfulversus, you know, thinking it
was like it was last time aroundand, and, and stubbing their
(53:58):
toe. So, so, yeah, lots of missteps
in this market which are easily avoided.
So yes, speak to an advisor be my advice.
That's awesome. And we'll make sure to include
all of that in the show notes sothat everyone has the links.
And with that said, Andy, thanksa lot for doing this and sharing
your wisdom. I think a lot of GPS and PE
firms are trying to navigate these uncertain waters and you
(54:18):
did a great job of of highlighting some of their
options and how to kind of get through all of that.
So I appreciate you doing this. Appreciate talking to you, Sir.
Thanks very much. Thanks for listening to today's
episode. Before you take off, just a few
requests from our side #1 if youhaven't done so already, please
subscribe to the podcast on iTunes or Spotify or YouTube or
(54:39):
wherever you go to listen to your podcast #2 if you are in
the market for due diligence services, strategy consulting,
or fractional CMO services, please get in touch with us at
www.hassas.com. And 3rd, please buy a copy of my
new book, Exit Ready Marketing. It covers a ton of concepts that
(54:59):
we take our customers through private equity investors, B
companies, CEO's, operating partners and marketers and
there's a ton of great value in there.
That expands on my previous bookpost acquisition Marketing as
well. So with that said, I hope you
enjoyed today's content and we'll see you on the next
episode.
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CMO capacity and partner with you on that business and lead
the internal team and the operational plan so that the
marketing function continues to make progress and drive more
pipeline and revenue. And will also help you hire your
(01:26):
next CMO by being part of that hiring process and on board that
new person once they're ready tojoin the organization so that
they get a running start. These three types of engagements
are some of the most common waysin which investors, CEOs and
companies work with us. And we have a proven track
record of driving a ton of enterprise value and revenue
growth across those companies. To learn more, go to
(01:47):
www.hassas.com where you'll get a lot more information in terms
of the types of engagements I'vedescribed.
And you can see case studies andother examples of the work that
we've done. So you have a lot more
confidence in partnering with us.
And with that said, let's get tothe episode.
Enjoy the show Come to the Private Equity Value Creation
podcast where we interview leading investors, operators,
(02:09):
bankers and advisors to help youanswer one question.
How do we increase the enterprise value of our
companies? My name is Shiva Narayanan and
each episode I will dive deep with a guest to help you become
a better value creator and. Capital.
Allocator. So with that said, let's jump
right in and let's get started with today's episode.
(02:31):
My guest today is Andy London. He is the managing director and
global cohead of the private funds group of Houlihan Loki.
And Houlihan Loki is a householdname that's one of the biggest
investment banks in the firm. In fact, they've done more
transactions and pretty much everybody globally across the
last few years. And what was great about the
conversation with Andy is that he specializes in working with
(02:53):
GP's to navigate all their different options and
fundraising options across secondary and primary
investments and all the other types of vehicles that are
available to get through, especially in the current
macroeconomic environment and uncertain waters that a lot of
GP's find themselves in. And what I really enjoyed about
the conversation is Andy brings a ton of perspective on how to
(03:15):
think about fundraising, what LP's are really looking for, how
to navigate things in the world with AI and how to really
differentiate yourself as a private equity firm.
How to look at DPI and IR and all these different things that
really make LP's invest more into private equity funds and
how to really position yourselves in this type of a
(03:36):
market. So it's a really great
conversation. And because of Andy's expertise
and experience here, we took theconversation in a bunch of
different directions from the political side of the world to
how the financial markets are moving and just the historical
context and how how funds need to be thinking about their
future in this type of a market.So I encourage you to listen to
the conversation and I guaranteeas you kind of thinking about
(03:58):
your private equity firm and your fund and how to return
liquidity to LP's and a bunch ofthese other topics that I'm sure
are happening inside your firm, you're going to learn a ton from
it. So with that said, I'll leave
you to it. Enjoy the episode.
All right, Andy, welcome to the show.
(04:18):
How's it going? Going very well and thank you
for having me. Very glad to be here.
Yeah, excited to have you on. Obviously Houlihan Loki is one
of the biggest investment banking firms out there, but
would love to kind of hear your particular role and what you're
focused on and, and then maybe give an overview of the firm and
and the ways in which you help customers or your clients and
then we can take it from. So, yeah, I'm Andy Lund, I
(04:43):
Cohead, our primary capital advisory business, which is
essentially A fundraising platform within Houlihan Lokey's
capital solutions organization. Essentially we raise the the
funds for private equity firms, whether it's the first fund, the
success of fund or adjacent fundthat that's our main role.
(05:07):
And then closely aligned with that without within all sort of
business world, we have a secondary platform both on the
LP side. So LP is a liquidity, liquidity
constrained looking to sell out positions and also we also act
for GP when they're trying to GPLED continuation vehicles, which
I'm sure we'll touch on is all the rage at the moment.
(05:29):
Other adjacent businesses, we have the leading GP stakes
advisory practice. So for mid market firms looking
to liquidate perhaps 20% to a select group of investors,
that's a very hot market at the moment and and we cover that and
we also have a new business which focuses exclusively on
(05:50):
direct investment. So investors who want to just go
into the deals themselves versusgoing through a fund.
And so with that, in our little world at least, we think we've
got a set of businesses that arevery relevant to the GP client
at any stage of their life cycle, whether it's the first
fund to get them into business all the way through be a GP
(06:13):
stake for perhaps succession planning and everything in
between that we think we bring in more strategic angle to the
party. I mean, Houlihan itself you
referenced is a, you know what it is today 13 billion market
cap behemoth, which focuses exclusively on the mid market.
So we don't necessarily make thefront pages because our deals
(06:35):
are relatively small, you know call it 2 billion EV and below,
but obviously that market has far more deals.
And so we're super active and asa result of that very active
with sponsors in that cohort of deals.
So very sponsor centric mid market focus bank on the M and A
side also a leading restructuring practice, a
(06:57):
leading valuation and analysis practice.
So kind of all weather bank, if you will.
You know if times are hard, we've got restructuring and when
M&IM&A's on a fly obviously got the the leading practice there.
So yeah, you know, very interesting platform.
Yeah. And and specifically for your
role, like where would you say your time goes the most or which
(07:17):
types of areas are you really focused on inside of land Loki
where you're working with private equity investors, their
firms and their portfolio and he's.
Yeah. So we really focus exclusively
on private equity and growth equity managers.
We do a bit of credit, bit of infrastructure, but our real
(07:37):
core focus is on is on private equity.
And I guess that any one time wemay be advising up to say 15
clients of different shapes and sizes.
Our, our business is located geographically across the US and
Europe with some footprint also in Asia and the Middle East.
But but essentially the majorityof our business is
(07:58):
transatlantic. And so at any one time, 15 GP's
probably skewed more to the US, maybe 60% US, 40% Europe.
And what we look for is a real edge, a real speciality.
Um, you know, in a world where Idon't know how many GP's there
are in the environment, in the market environment today, but
there's thousands all say they're unique and highly
(08:20):
differentiated. You know, we really look for
those that can really credibly claim to have an angle or an
edge, because that's what's needed to, to clear the market
in this environment. So, so yeah, it's, it's, it's
buy out managers and it could bedifferent maturities.
We're, we're happy to get someone into business on day
one. They may have run out of a
bigger firm and this is our first fund all the way through
(08:41):
to more mature managers where they're looking for a select
more tactical mandate, maybe a different type of investor or
investors in a different geography to augment their
existing investor base. So we could be very flexible
with how we advise our clients. And talk about where you're
sitting, because obviously the market dynamics have changed now
versus in the last few years. So where, what types of
(09:03):
transactions, what type of fundraising or areas are you
helping these these fund managers with?
Like where are you seeing the focus shift to?
Obviously, you mentioned GP stakes, the secondary market,
but just shed some light onto where the market is today and
where the opportunities are. Yeah.
I mean the market on the primaryside at least has, has been
extremely tough, right in the sort of talk, talk about kind of
(09:26):
post financial crisis, post finance crisis up to sort of
COVID, you know, the, the, the private capital markets were
relatively robust. Fundraising was recovering from
GFC. There was an abundant amount of
leverage. It was really low cost and so
lots of deals were getting done and the kind of flywheel worked
(09:48):
pretty well. I'd say post COVID, you know,
the markets changed dramaticallyas we know, right?
There's, there's far less leverage about, it's more
expensive, there's more geopolitical shocks and life
just become tougher. And as a result of that, the
fundraising market has had to, or GP's have had to adapt and,
(10:10):
and as part of that, the fundraising market has, has had
to adapt. And so, you know, most LP's now
feel like they're more in control than they were.
They have the cards and most of them have become very
transaction transactional in nature.
So it's not just about getting access to a given fund.
They want to have access to a fund with their commitment, but
(10:33):
would also like to see perhaps some Co investment along the way
or maybe a secondary to, you know, to to make it more
appealing. And so it's just harder to
attract those commitments. And at the same time, because
the world is a different place and a lot of GPS and nursing
large unrealized portfolios, they haven't been able to give
(10:56):
the money back as quickly as perhaps the model suggested.
The LP's have got a much bigger diligence job.
You know, they're now looking ata large number of portfolio
companies, some that were boughtthrough that 18/19/20 hubristic
period where valuations were pretty high.
And they're trying to work out, you know, whether these assets
are actually any good. And so, you know, as a result of
(11:19):
that, and because diligence is safely longer and there's less
liquidity, generally, fundraising processes are taking
much longer and not everybody's getting funded.
And so, you know, we are in a bit of a liquidity squeeze right
now. And I think even though the
market has recovered in the last12 months, it's still pretty
tough out there. And so as I described, you know,
our business has different levers that we can pull when we
(11:41):
start a fundraising assignment even for a good manager or a
manager with good performance and we put it that way, there's
still a good likelihood that some of their existing investors
in the prior fund have issues. And so we'll already start a
conversation about how we can perhaps help unlocks and
liquidity via secondary in a market like today where there's
very limited M and a activity continuation vehicles, GP led
(12:05):
processors are another way that a PGP client can, can give some
money back whilst holding on to the assets.
And so those are something we can help with.
And so it's, it's just about using all the tools in the
toolkit in a very creative and strategic way in order to try
and move the process along. You know, that's what's really
changed. It's it's, it's just become much
tougher. Right.
(12:26):
Yeah, I, I, I definitely see that with a lot of the private
equity firms that we work with that they're working on fewer
transactions, secondary investment is something that
they're they're looking at more talk about.
Just this piece on the LP side, Like how much pressure are these
firms facing to generate liquidity?
Because some of these funds likeif you're it's 2025 now and
(12:46):
let's say you raised a fund in 2021 and then you bought a
company at a high valuation and it's time to potentially return
some of that liquidity back. But the market to sell the
company isn't there. So how high is that demand from
LP's to find some of that liquidity to return the fund
right now? Yeah, yeah.
So, so yeah, there are a number of metrics that are used in in
(13:07):
in our world, you know multiple of invested capital, IRR and
then this term DPI distributionsto paid in capital.
That is that the latter is what everybody is looking at.
How much money are they getting back and when are they getting
it back? I saw, I think it was a Bane
report that had some analysis that showed that in 24 liquidity
(13:31):
is a percentage of the overall buyout NAV.
So the unrealized portfolio across the entire industry, the
liquidity was 11%. So that indicates that it's
gonna take at that rate 10 yearsto get your money back, you
know, which was not, which was not what LP's were promised and
certainly not what their models would, would, would, would,
would geared up for. So, so it is a real liquidity
(13:54):
crunch at the moment. You know, it's that sort of pig
in the Python put crudely and and so if you're GP that can
show that you are still able to get liquidity back to LP's and
drive that DPI metric, you know you will go top of the class.
And in fact, if you can do that via regular way sale, which even
(14:16):
in the difficult market is stillhappening right here, there's
still activity on the M and a side that would also indicate
that you've got good assets thatare, you know, able to sell in
difficult times. And so again, it's another, it's
another that of the, you know, marking your favour.
That's why if you can't get an exit in a normal way, you know,
(14:37):
continuation vehicles, there arekind of natural alternative.
But but yeah, liquidity is the key driver at the moment and and
it's what's causing a lot of issues for people.
The other thing is in certain styles of investing.
So think about hyper growth tech.
You know, back in 1920 that was a very, very buoyant market.
(14:57):
Lots of capital raise, lots of capital deployed quickly that
then justified even bigger fundsnext time around because the
fund was deployed in two years, not five years.
So that justified a an accelerated pace.
And you know in in hindsight it looks like a kind of hubristic
end of a cycle type of phase, which it probably was.
(15:18):
The question is if you're buyingassets at those very elevated or
inflated prices and assuming that you were gonna get your
money back via an IPO, for example, and the IPO market is
completely dried up. You know what is going to happen
to those assets which have now been held on 80s in GP
portfolios for for a number of years.
(15:39):
And so these are the sort of concerns that LP's are challenge
with. That's why they're spending so
much time in their diligence phase really understanding
whether these assets actually have any intrinsic value
visibility, what the entry pricewas just given the new normal
that we're in. I think the other part of it is,
you know, if you think about some regular way private equity
(16:00):
strategies, you know, buying an asset, adding a bunch of
leverage, which is basically, you know, very low cost,
probably not free, but very, very low cost.
And then, you know, holding it for a few years, even if you
make some improvements. There was a, there was a pretty
boy, an exit market where you know that mortal worked.
And in today's environment whereleverage is far harder to get
(16:20):
hold of and it's more expensive,yeah, there's a lot of questions
just about the efficacy of that basic kind of financial
engineering. And so the current scheme that's
on again, every LP's lips is operational value add.
Are you a GP that can the vibe in this market?
Does the model actually work andstill deliver the sort of
(16:41):
returns that private equities promise, which is, you know,
through time of your money net and ±20% net returns that that's
that's the game right now. And so that's kind of why at the
moment there's a whole swath of the private equity market, you
know, which proudly you could call, there's this term jam
(17:02):
Boff, just another mid market buyout fund.
Now that there are many of thosein existence, right?
Which did perfectly well in the good times.
And the question now is, if you're a sort of middle of the
road generalist private equity firm, maybe a bit long in the
tooth, some older founders, etcetera, etcetera.
(17:23):
Are you really the, is that really the sort of place where,
you know, LP's are going to continue to support and, and,
and place capital for, for kind of next Gen. investing?
Or are they going to go for, youknow, newer groups who are
perhaps more literate with AI and some of the technical
technology that's underpinning, you know, the world we operate
in, set themselves up so they'remore easy, you know, better able
(17:46):
to navigate sector discipline or, or, or types of deals.
And so we're actually seeing capital moving downstream to
some of the new entrants, some of the more nascent firms, some
of the next Gen. firms where, you know, there's some fizz and
excitement that this is the group that you know, really is a
better option for the next 10/15/20 years.
(18:06):
At the same time, you know, the bifurcation also moves back in
favour of the larger cap firms who continue to do well, The
HG's, the TA associates, the Advents, you know, they, they,
they're returns maybe aren't as good as they used to be, but
they're still pretty good on a relative basis.
And, you know, the kind of, you know, get fired for buying IBM
(18:29):
mantra is very much alive and kicking.
So that bifurcation is very muchpart of today's fundraising
landscape. And, and, and the large number
of firms that are sort of somewhere in the middle, they,
they have some issues to deal with.
Some of them will be existential, I think, over the
coming years. Yeah, first of all, I love that
(18:50):
term, the jambal for Jambo or whatever term, he said.
Because. I got a coffee right there.
Yeah, I love it. I love it because we meet so
many firms on an ongoing basis and it's sometimes hard to
distinguish one fund or firm from another.
And your best firms that we see like we, we keep you associates
is a close partner and client ofours.
And then we have a large list ofPE firms that the ones that are
(19:13):
doing well have a very differentiated position, whether
it's by vertical or segment of the market or industry that they
really focus on or they have a very clear cut strategy in terms
of how they are actually going to generate a return for their
LP's. And then we see on the flip side
a bunch of mid market firms thatdo look the same, that say the
same things chasing the same types of companies and it seems
(19:36):
like generating alpha for those firms would be significantly
harder. And so I guess that transitions
to my next question on the secondary side is even if you
can generate secondary capital as a way to find liquidity for
these LP's, isn't it? Is, is there a form of like
kicking the can down the road? But the problem still exists
(19:56):
because if especially if you bought a company in 2122 and it
hasn't grown, the way that you see the book value of that
company is significantly higher than what its actual market
value today would be. So kind of how do you
distinguish that and how can secondaries be leveraged as a
way to as as a strategic advantage in a market
environment like this? Yeah, I'd say it's two things.
(20:17):
One, if you're talking about secondaries in relation to
assets, so continuation vehicles, yeah.
And I think this is an area thatLP's are also placing a lot of
scrutiny on because like most ofthe the technology is, is pretty
mature now, right. It came out of restructurings
back in maybe the late 2000s post GFC.
(20:37):
Nobody talks about, you know, GPleads were effectively
restructurings back in the day. Now it's an IR tool, it's a
portfolio management tool and and if it's used authentically,
it should be win, win for all parties, right?
Because you have an asset that'salready off to the races.
It's let's say you're fiduciary target for an LP is 3X, right.
(21:00):
A lot of lot of GP's will focus on that sort of metric.
You've got those LP's in your funds saying I need money back
and I need it back now because I'm liquidity constrained.
The M and a market, you don't wanna sell the asset cause you
think it's got, you know, a muchlonger journey where it will
continue to grow, continue to, you know, be be a great result
(21:20):
way beyond say the 3X. That's when you know you can,
you can go to your LP's and say,OK, I can put this into an SPV,
bring in some secondary capital and you, the LP's can choose to
either cash out at 3 or 4 times whatever the, the metric is very
attractive return or you can roll.
(21:43):
You can continue on this journey, right?
We think this could ultimately be on the original investment
plan, a 10X. That's up to the LP to decide
now, you know, industry stats would show in excess of 90% of
LP's will take the money becausethey are so liquidity
constrained. And then, you know, the GP will
be aligned with the next set of investors, those that roll the
(22:05):
lead investor, which is usually always a secondary house.
And then there's potential for some other follow on.
They'll have to roll their carry.
It'll be a big commitment from the GP.
And so again, that will show a commitment from the GP that this
is an asset that they genuinely want to run for another
investment period with the intention of, you know, doubling
their money again or whatever. So, so if set up correctly, it
(22:28):
is a pretty aligned model. Where I think LP's are nervous
at the moment is, you know, can't sell an asset in the open
market. So we'll just do a continuation
vehicle. And then there's lots of
question marks about, you know, what the valuation is, the
efficacy of that valuation, so on and so forth.
And so that will be the challenge will be to show that
this is actually an authentic company.
(22:49):
Yeah. For for this kind of, for this
kind of, for this kind of vehicle.
Yeah, I think the vehicle in andof itself, I understand.
I guess it's more just on the valuation side.
If you kind of on the on the books you have a certain
valuation, you kind of have to mark it down to some degree for
it to be fair in some to actually generate a return.
Do you think that that kind of creates a conflict of interest
(23:11):
in some scenarios? I mean, it depends, right?
So one thing's for sure, secondary investors are some of
the most sophisticated investorsout there, right?
So they want to come in for sureat the best possible mark, which
is why the classic case where itsort of goes wrong is a GP tries
to sell an asset in the open market for say 3X.
(23:33):
Nobody wants to buy it for a 3X and they think, OK, well, we'll
do a continuation vehicle and try and get the same amount.
You know, the first thing is secondary investors gonna do is
look at what the carrying value was for that asset, which is
usually lower than the the pricethat people are trying to get in
the market and say, well, that seems to be the starting point.
And so you're already at an inherent discount that that.
(23:54):
Also, this is a sidebar, you know, so many GP's wear as a
badge of honor in their materials, a page in their deck
where it shows all the realisations over time and it
shows what that asset was valuedat two quarters before exit and
what it actually was exited for.And what they like to say is
(24:16):
the, the, the uptick of value onexit is, you know, very high
number and increasingly LP's thesame.
We don't want to see that. We don't want you to say that
you're very conservative in yourvaluations.
We'd much prefer a few or more accurate in your valuations.
Like it's nice to have a luck take, but it doesn't have to be
85% or something egregious. And again, if you think about
(24:36):
the secondary scenario, if you're, if you're deliberately
being conservative with your valuation on the marks, that's
just hurting you right away as you start negotiating what the
what the transfer of value should be.
There are ways around it. I mean, you know, Houlihan has
got an enormous division that does all sorts of, you know,
wide range of valuation services.
(24:59):
It's one of the lead evaluators for continuation vehicles in the
market today. So having an independent
fairness opinion on the value obviously helps.
The other thing you can do is you know, you can create
situations where you partner with let's take TA associates,
you know, very, very blue chip name, highly credible GP.
(25:21):
If you were to set up a a structure where someone like a
TA associates was to take a leadposition in your asset, but
leave enough so you could build a continuation vehicle around it
and effectively therefore continue to Co invest alongside
A sponsor like tier associates. Clearly no one's going to argue
with TA associates valuation because, you know, they are
(25:42):
considered to be best in class. And so that that means that the
you know, the secondary investors kept honest because
they have to go along with the, you know, the market clearing
valuation. So there's kind of ways you can
structure this that so so you make it, you know, fair for all
parties. But yeah, I agree with you.
If there's a feeling that you are basically putting it in a
(26:02):
continuation vehicle at an egregiously low value just so
you can kind of continue a leg of the of of the journey, it
could potentially be very misaligned with your investors,
you know, in the fund that it comes from.
Having said that, they can stillroll, right?
They have the option to roll. They don't have to sell.
It's only up to them, as you know, it's, it's their decision,
(26:22):
you know, whether they want to sell or not.
Would you say that there is a orI guess different phrases, do
you, are there a lot of P funds that are kind of in, in trouble
because of this valuation mismatch or they have assets
that are kind of stuck and they're struggling to find
liquidity? And because we've seen some PE
farms kind of go under where they were super active 5-6 years
(26:43):
ago and they were one of the names in the market and now
they're not existent because they weren't able to kind of
return the funds. So I'm just curious like how you
see the general PE market and the lot the the future of a lot
of these funds? Yeah, I think that that is a
bigger question and one that I, you know, my own thesis is we
are in the early innings as a result of this change dynamic of
(27:03):
a real shake up in the industry I think.
And it takes a long time for this to really come to the
surface, but there are many firms that free COVID, we're
doing extremely well. They'd have very successful
fundraising, which is, you know,1 barometer for fund health, big
support from investors. They then perhaps didn't invest
(27:24):
so wisely, maybe got a bit hubristic, raised too much
capital too much too quickly, maybe some bad decisions, maybe
some bad luck along the way. And now they have very large
unrealized portfolios with some assets that are in real trouble.
They, the investors are not re upping for the next fund and
therefore new investors are saying, well, hang on a second,
(27:46):
what's going on here? If the existing aren't coming
in, why am I so lucky? And so the whole thing gets
stalled and delayed. That then causes internal
tension, particularly for, you know, perhaps some of the, you
know, partners on the foot in the firm who might have had very
successful investments, but their performance is getting
(28:09):
diluted by others. And so they're now looking at,
you know, potentially not getting carry or, you know,
their compensation is not going to be what they thought it was
going to be. And as the fundraising market
recovers and certainly with the pivot towards kind of next Gen.,
this is a time when maybe you know, some of those not managing
(28:29):
partners and the firms, but nextlevel down, I think, well, this
is maybe my moment in the sun. Why am I going to recommit to a
firm that's essentially in trouble when I can leave with my
track record, which is very goodand go and set myself up.
And so we're seeing a lot of that activity and it is a net
result of that. You have firms that have lost
talent, a skilled with fundraising and have issues in
the portfolio. And you know private equities
(28:52):
are very unforgiving asset class, right that that could be
an existential moment for some of these firms.
And in fact what we're seeing, Imentioned we have this direct
equity business. The reason that's a really
interesting tool is, you know, historically that capital was a
sort of get you into business type tools.
So somebody's thinking about thespin out of a firm, they want to
(29:14):
do their first few deals to get a track record together.
And so they raise money on a deal by deal basis, build a
track record and then they raisetheir first fund.
You know, increasing this directcapital is being used for that
for sure, but also to prolong the life of a or allow
investment activity to continue beyond the end of the fund life
so that the fund can actually crystallise a bit more value
(29:37):
before they go back to market for the next 1.
So that's, and this is for funded sponsors and also just to
do, you know, if you're doing deal that of your fun, but
worried about that fund drying up, you might wanna tap that
direct market just as a, you know, an additional source of
capital so that you know, you'reyou're you're extending your
(29:57):
funding a slightly different way.
So again, it's a very useful tool that's being tapped as much
by funded sponsors as independent sponsors, which
which is an interesting dynamic.Yeah.
I guess in this type of market, one of the things that we've
seen is that I see more lower middle market firms performing
well. And I've heard from a lot of
smaller firms that they're actually doing quite well
(30:20):
because historically the privateequity dollars that went to
larger firms, they weren't interested in writing smaller
check sizes. And there, there are all these
quality assets that have had lesser competition simply
because people want to deploy more capital and now they're
seeing a lot of funds actually move down market to try to chase
(30:40):
smaller assets. And that kind of goes along with
what you're saying. So just curious just in terms of
making these firms be more successful long term, are you
seeing that trend as well where larger PE firms where maybe they
wanted to write 100 million pluscheck sizes are also chasing
some of the smaller companies? Well, I think, you know, most
private equity firms have the ambition to grow in one way or
(31:04):
another. And so for sure, you know, one
way of growing your overall a UNonce you got to a certain scale
is to is to, you know, raise a series of funds, whether you
call it, you know, the heritage fund or or whatever.
But essentially it's a, a go back in time type strategy,
(31:24):
right? So if what tends to happen is it
Roman numerals 1-2 and three tend to be the most productive
funds, right? That's the smaller deals.
That's where hunger and hustle is.
Perhaps that it's, it's maximum level and and so performance
tends to wane overtime as funds get bigger.
And so 1 clear narrative and strategy is to say, look, we're
(31:47):
going to create a pool of capital that that allows us to
go back and capture those types of deals, the ones that we did
very well back in the day, whichincreasingly were not able to
pursue now because we have a flaw given the size of our
funds. And so those kind of heritage
funds are very much alive and kicking.
I'd say, you know, it's less common for an established mid
(32:09):
market fund in the US, let's say$2 billion to suddenly start
targeting small deals within that within that fund structure
because you know, it, it starts messing with the metrics.
You know, you only want to do a certain number of deals.
You've only got certain amount of people to run those deals.
You know, if you take it to the enth degree, no matter how
(32:29):
successful a small deal is in that context, it becomes a bit
of a rounding error, right? You know, if you're 5 million
investments are 10X, but you'll tend to be investing, you know,
50 to 100 equity tickets, you know it, it doesn't make any
sense. And that's why people or GP's
who want to grow the platform carve these out into special
specific vehicles. At what I do think though, to
(32:52):
your point is, and I sort of mentioned it is as LP's are now
thinking about what to underwrite going forward, you
know, what's going to succeed inthe current market environment,
which I think is going to changeanytime soon.
They are increasingly the biggerallocators are increasingly
being drawn down market to smaller funds because that's
where they believe the true alpha lies.
(33:13):
That's where they believe you have more companies, they have
more ability to affect change with those companies, you know,
they're less formed. And so I think the, the real
hunting ground and this is wherewe spend a lot of our time
raising capital is to find groups that have, you know, a
very specific niche expertise sector, deal type, whatever.
(33:36):
We've also got a credible operational capability.
Every GP says they've got operational capabilities, but
these, you know, certainly not all created equal.
If you've got a team of people on your payroll who are
dedicated operational assets, you know, best in class, former
consultants, etcetera, who are, you know, helping with the
diligence and sourcing and then the, you know, initial value
(33:58):
creation phase. That's a major plus compared to
a lot of GP's who still, you know, claim they have that, but
it's more sort of like, you know, outsourced, retained, you
know, advice. And so, and then you put the,
the, the overlay of AI, which isa question I would think a lot
of GP's are wrestling with at the moment.
(34:18):
You know, how how is AI affecting how you run your firm,
how you invest? I still think GPS need to
quickly find good answers to that question.
Some are some are very much on the forefront.
They are, you know, setting their own GP's up in a very
professional way. You know, using AI to, you know,
radically improve the productivity at the GP itself,
(34:41):
just like you would expect at one of their portfolio companies
are using AI to massively enhance sourcing.
I mean, we're using it a Houlihan.
It's a huge push to to use, you know, their own proprietary AI
systems for sort of monitoring the M and a market and also
capitalizing on the immense amount of data that we have in
our, in our firm. Just like every private equity
(35:04):
firm has a momentum amount of data that you can use, you know,
figuring out the systematic replicable value creation
patterns, which is what an Lt. wants to see.
So, you know, Berlin a month or so ago, go for the Super return
conference, there were some GP'sthat had really credible answers
to that question and were, you know, that the conversation
became very animated and it's what the LP's, you know, what
(35:27):
are hoping for. But there's plenty of managers
that really still look a little bit rabbit in the headlights
when this topic of AI comes up. And that's something the
industry's gotta improve on dramatically.
So, so talk about that piece a little bit, because we hear from
almost every investor that we work with is something that's
top of mind. Their portfolio companies want
to figure out how to leverage it.
They're being affected by it by generative surge, maybe MQ's and
(35:49):
pipeline is down because a lot of traffic at the expected from
let's say paid media or SEO is going to some of those
platforms. And then even on the
technological side or process side, you gotta figure out how
to leverage AI to drive enterprise value.
So I'm just curious in terms of how you're seeing with LP's and
these GPS, how much are they thinking about AI and what are
(36:09):
some of the things that are working or areas where they're
really focused? Yeah, I mean, and look, it,
it's, it's it's like everything.LP's can ask questions on any
subject and they have their own,you know, they, they always want
to hear the right answers and it's, it's difficult.
It's a challenge right for for GP's to, to, to, you know,
continuously please on on all fronts, particularly in a topic
(36:30):
like AI, which is still thoughtsdeveloping.
I think the obvious areas are sourcing, right?
You know, using some kind of um,AI related data strip that makes
complete sense and you know, just gives you LP's don't
believe the term proprietary sourcing anymore.
(36:51):
Generally, right? And GP still talk about it a
lot. And then you read the small
print and you know, Asterix, Asterix at the bottom of the PPM
page and you realize that a proprietary source deal is an
auction that only involve 4 players, right or whatever.
I mean, it's, it's, it's sort ofnonsense because private
equities become commoditized, right?
That's, that's the challenge at the moment with, with leverage,
(37:13):
which is not over, you know, excessively priced, it's just
modestly priced. It's what it was in the early
2000s. But back in the early 2000s
there were far fewer players andnot everybody heard of private
equity. So there was an arbitrage
opportunity. So you know, trying to access
deal flow on a preferred basis is one of the key challenges for
any PC firm. So if you can use AI to augment
(37:36):
that, you know, you will marginally put yourselves ahead.
So I think that's one big area that's pretty obvious that a lot
of GP's are looking at. And the other piece, as I said,
it's, it's, it's trying, you know, what a, what a, what an LP
wants from a private equity firmis, is consistency.
They want to see this replicable, replicable approach
(37:56):
to value creation, a playbook where maybe there's some
missteps along the way. In fact, in some cases it's
quite helpful to have a case study about, you know, what went
wrong, why, what did we learn from it?
If you don't have that, you're just waiting for the time when
you're going to have one of those.
And so that's what LP's are looking for, that replicability
strategy and, and also, you know, pivoting to, to, to, to
(38:20):
the sort of world that we're in.And so I think what they're
looking for now is a, is a sort of AI component to that.
You know, how are you really analyzing what you're doing to
these companies? So you are maximizing every
single shred of value that you can get out of them, which is,
you know, that activity has never been more important when
you can't rely on leverage or orrising markets, you know, to to
(38:45):
to help generate the returns. So and that's the bit I think
this far less developed because it's developing so quickly.
Yeah. One of the things that I've seen
is that a lot of P firms don't have a clear perspective or
process on how to drive enterprise value creation with
AI across all the domains of value creation, whether it's
(39:06):
pricing, sales, efficiency, marketing, which is a lot of the
work that we do, even just product or just general go to
market and positioning and thosekinds of things.
So I think that that's an area where there is a ton of alpha to
be found because it's very rare to come across a the firm that
has that process fully built outin all the value creation levers
(39:28):
that they can deploy across all their portfolio companies.
And then on the sourcing side, I've seen a lot of firms like we
talked about this Jambox conceptthat you said they look and
sound the same and not enough firms are putting in that effort
to distinguish themselves actually source deals uniquely
or position themselves in a way that an asset out there will
(39:49):
choose them over the ten other PE firms that are interested in
that assets. So can you talk a little bit
about that? It's like, how can these be
firms really distinguish themselves to win more deal flow
and how much selfies care about that?
Yeah, that's another good point actually.
Well, by the way, just going back to the Jambox point, which
I, I'm, I'm anybody I fear I'm going to regret using that term.
(40:10):
But anyway, I, I definitely don't mean it too much in a
demeaning fashion. Look, a lot of that cohort are
have had to rely on in order to continue to sort of survive,
they they've had to rely on giving away an enormous amount
of fee and carry free Co investment.
So that's the model. You know, they, they have
transactional LP's who've remained loyal because in some
(40:32):
cases for every dollar they've invested in the fund, they're
getting one or multiples of thattheme carry free in deals.
If you do that blended return, it's not, it doesn't have to be,
you know, it doesn't have to be a great deal to still yield a
very good net return, right. If you think about, you know, a
higher fee situation, gross to net spread.
So you know, that's the way a large component are are sort of
(40:55):
playing the market at the momentand it, and it sort of worked
for them as it relates to, you know, where the market is going
in next Gen. I you know, I don't think that's
enough. It's more like a, a sticking
blast or a Band-Aid, you know, for, for, for times when they,
they struggle to raise capital. You know, what LP's want now is
something that is set up for thefuture.
(41:17):
I'll give you an example again, in a world where everyone says
they're unique and highly differentiate it.
You know, we, we, we raised the fund for some former colleagues
of mine from, from Advent in, inEurope called BD Capital.
Now you can believe this model or you don't or you don't right
(41:37):
it, but but what I would say is their model is different.
And So what they have is half the team is investment
professionals, you know, very credible investment
professionals, typical private equity type people.
And the other half is made-up ofmid cap CEOs who you know aren't
necessarily name brands, but in a specific sub vertical.
(41:59):
They will be very known people, but more importantly, they know
what it's like to run a company.They know what it's like on a
Sunday night. It's a lie in bed worrying about
sales figures or new product launches or whatever.
And what they don't want on the Monday morning is a spreadsheet
from a young, you know, associate at the tea firm
saying, Hey, can you just fill in your weekly reports because
(42:20):
we want to sort of go and do some, you know, spreadsheet
jockeying back at back at the back at the shock.
They want someone who's going tohelp them solve those problems.
Who's who's who can empathize with the issues associated with
running a business. And So what BD of being very
successful in doing is, is finding deals where very quickly
(42:41):
the management team, you know, whether it's the founder or a
professional management team that's been installed, really
gravitate towards them as a GP that they feel they can partner
with. Because they don't think it's
just a bunch of kind of financial engineers, you know,
smart Wiz kids consultants who are just trying to spreadsheet,
you know, treat their business as a spreadsheet exercise.
(43:01):
Of course there's some of that that goes on, but it's more the
the feeling they can sit and talk to someone who's run a
company and done the same, you know, succeeded in the same
challenges they're trying to overcome.
So that's very powerful. And I think, you know,
increasingly, again, with this kind of focus on operational
aspects, more and more GT are trying to figure out how to sort
(43:24):
of build that capability. It's complicated, right?
I mean, it, it, it is, it is a, a different psychology,
different philosophy, philosophyto as an investment
professional, suddenly bring in operating people and treat them
at the same sort of level. You know, that that's not
necessarily being the, the LP model.
And so again, I think it's part of this sort of this change of,
(43:46):
of, of, of, of methodology that we're seeing, you know, as a
result to, to the challenging, you know, market environment we,
we sits in, but but that will unlock deal flow, right?
That is genuinely a way of, of, of, you know, having a
conversation with a prospective target that that immediately
then where you immediately have some, um, some currency versus
(44:09):
just being another provider of capital and it's all about
pricing. Yeah, 100% agree with that.
I, I definitely think that that is one of the future iterations
or evolutions of private equity is having resident experts that
have actually run companies and are operators and CEO's or
revenue leaders or marketers that have really been there and
(44:30):
done that to actually support these companies.
Because that is a differentiatorthat to create alpha in a
marketplace of PE fund that is kind of running it with just
analysts or MBA graduates versusone that has operators.
The one with operators is far more likely to win.
So I, I definitely, definitely agree with that.
One last question before we close things off.
How do you think about the macroeconomic environment and
(44:54):
just political geopolitical landscape and the tariffs in the
US and and how is that affectingthe market for investment in
private equity firms? Yeah, I mean, look, I, it's,
it's a, if I had the right answer to this, I could
probably, probably did pretty well in life very quickly.
I, I think there's a few things going on at the moment.
(45:16):
And you know, the general commentary, I go back to Berlin
a month or so ago, right, which is a good barometer for the
industry. It was after Liberation Day that
was one of the main topics was you know, how are these, how
these tariffs affecting things. You know for sure it has created
a pause in, in the M&A environment because you know,
(45:39):
until you know, I'll have bettercertainty about the direction of
travel of some of these tariffs,you're just gonna go on hold,
right. I mean, that's just the way the
world works. So 2025 was supposed to be the
year of the exits. It was trying to get that pig a
little bit further out the place, and that's clearly not
going to be the case. Having said that, some of the
(46:02):
other commentary as a result of Liberation Day was that, you
know, Europe is going to be a big beneficiary.
You've had some of the big guys say, you know, we're all all
over Europe now. I think Blackstone, KKR have
gone on record saying we're gonna deploy more, much more
capital into Europe. That may be the case.
The flip side is, is is, you know, the feeling is that LP's
(46:22):
were also going to spend more time looking for European
managers than perhaps the US because there was a feeling
that, you know, the US was just in some self induced disarray.
My sense is it's not going to change things.
The US is still the dominant private equity market.
It's showing you can pick any moment in time the returns
(46:43):
outperform anywhere else on the planet.
You know, there are plenty of political risks, there's
currency risk, there's labour law risk, there's all sorts of
risks across Europe and other obviously other parts of the
world which, you know, the US doesn't have.
So we did a survey which was published literally the week
before Liberation Day, which obviously rendered it completely
(47:06):
useless even though it was pretty detailed across, you
know, 140 LP's. Um, the question about
geographic preference was, was dominated by the US 93% of the
respondents said that the US wasgoing to be their first choice.
Europe, I think was like a 60% second.
So will Europe move up a little bit?
(47:26):
Yes, probably. And the US will maybe decline a
little bit, but it's still goingto be the dominant market in my
view. And I think, you know, everyone
sort of gets how Trump is playing this right.
He, he, he is creating some volatility along the way.
He's actually doing what he saidto everybody he was gonna do.
And, and so far, you could argueit, it's, it's sort of, you
(47:48):
know, people, people are marching to his tune.
And so I, I think this will all kind of sort itself out.
Let's remember your average private equity for fund is
longer than your average US marriage, right?
People talk about 10 + 1 + 1. I think it's more like 17 or 18
years, which is why the whole fundraising process is, is
proper courtship, right? You are trying to induce
(48:09):
marriage. And so, yeah, we could all talk
about what the next 1218 months is going to bring.
But actually, you know, these funds are in for a much longer
period. And so I, I think the US is
still going to be a key target for the rest of, you know,
geopolitics. Who knows, right?
I mean, we've never been in the most more unstable environment.
There's some trends that are appearing as a result of that.
(48:31):
Europe's got a lot of defence funds popping up left, right and
centre, European resilient funds, etcetera.
Again, who knows, right? You know, that that's all on the
back of, of, of the US position visibly NATO, but that could all
change very quickly, right? You know, the US could easily
come back and say, you know, forwhatever reason, we're gonna,
(48:53):
you know, give you more support if they start seeing the sort of
movement that they were requesting.
And I think there's still a hugehill to climb in terms of
private capital filling a funding gap for defence, right?
There's all sorts of restrictions.
There's a lot of chatter about it making sense and being a good
idea, but I think we're a long way from from that actually
rolling out in, in in a very short term proactively and into
(49:17):
funds. So look, there's, there's a lot
of sort of always in, in the world.
I, I would say one thing, you know, it seems that while for
sure the M and A market has, has, has has slowed as a result
of this. You know, that market does not
like uncertainty. You know, the, the, the, the
certainly from Mark where we siton the, on the fundraising side,
(49:37):
you know, what was a fast recovering market continues to
have a strong pulse. I mean, it's in rude health and
we're seeing everything that we have on our platform get funded.
Whilst LP's are really challenged with liquidity,
they're also finding ways aroundit.
You know, it maybe they just consider, you know, continue to
not invest in their historic relationships because they,
(49:59):
they, they move on and that suddenly frees up commitments
for new relationships. Again, the P world's quite
brutal like that. And so I'm actually cautiously
optimistic about how 2025 will turn out.
I wasn't immediately after Liberation Day, I thought it was
all going to come screaming to ahalt.
And I think as, as this year rolls forward and some of this
(50:22):
sort of tariff noise either either the little bit, you know,
I, I, I, I think we may get backon a trajectory which you know,
which we were on at the start ofthe year, which was actually
pretty positive. Hmm.
When do you anticipate things kind of picking back up just
from your perspective because a lot of people funds are kind of
worried, worried or wondering about that like when will
(50:43):
activity levels or the amount ofsupply out there will change and
and what the what the horizon for that kind of looks like?
Yeah, it's, it's really difficult to say.
I think what's what's for sure is private equity duties are
monomer nightly focused on finding a way to create
(51:05):
liquidity for LP's. They have that message loud and
clear. They also have a huge amount of
dry powder that's just sitting there on the shelf.
And so, you know, one thing thatprivate equity has shown time
and time again through multiple cycles used dislocations, you
know, it's shown that they can adapt and in certain cases
(51:27):
thrive. And I think, you know, I, I do
think that will be that that will be the, the outcome here.
There will be a way through. And I think if you were to roll
the clock forward and have this conversation in the year's time
and some of the topics we've covered, summer adoption of AI,
there will be no doubt that bifurcation or or or changing of
the guard will always continue. It's a pretty brutal industry.
(51:49):
You know, those that do well getfunded, those that don't kind of
wither on the vine. There will be some wither
Withers that are notable because10 years ago they were flying
high. But actually if you do, if you
go back in time and then at least an interesting exercise at
Advent where you looked at over certain time periods who the top
(52:10):
10 firms were, what size they were, 7 and so forth.
And as you looked over those time frames, in some cases, the
same names would be on the sheet.
You know, some of the bigger guys, Carlisle, would rise in
prominence. Others would just completely
fall off the map, right? They just ceased to exist.
And so, you know, we're definitely in a period where
some names will maybe not cease to exist per se, but will really
(52:34):
struggle. And so that's just going to be
part of the shake up that is private equity.
And in a world that's become much more commoditised and
congested, honestly, it the industry probably needs a bit of
that, right, because it keeps everybody honest.
And it, and it means that you know that the, the, the, the
LP's are ultimately being able to be given the choice of
backing, you know, the, the nextGen.
(52:55):
Of exciting small sophisticated LP's that GPS that can can
navigate some of these complexities.
Yeah, yeah, totally agree. And that's a good note to close
the episode on an enemy. If there are investors or GP's
listening and they need help navigating some of this
uncertainty or figuring out how to work with their LP's, how do
they get in touch with you? And then we'll hand Loki to just
(53:15):
kind of see what what their options are.
Yeah, I mean, my, well, my, my, they have my name and their
websites got a link to me. And so happy to have a
conversation with, with, with anybody who's trying to navigate
some of these challenges. And, and I would encourage
anybody if they're thinking about raising capital well in
(53:36):
advance to, you know, speak to someone like me, even if it's,
even though it's free advice they overpaid for, you know,
the, the, the, you know, just understanding what's out there
and the complexity of the market.
I I think is, is already helpfulversus, you know, thinking it
was like it was last time aroundand, and, and stubbing their
(53:58):
toe. So, so, yeah, lots of missteps
in this market which are easily avoided.
So yes, speak to an advisor be my advice.
That's awesome. And we'll make sure to include
all of that in the show notes sothat everyone has the links.
And with that said, Andy, thanksa lot for doing this and sharing
your wisdom. I think a lot of GPS and PE
firms are trying to navigate these uncertain waters and you
(54:18):
did a great job of of highlighting some of their
options and how to kind of get through all of that.
So I appreciate you doing this. Appreciate talking to you, Sir.
Thanks very much. Thanks for listening to today's
episode. Before you take off, just a few
requests from our side #1 if youhaven't done so already, please
subscribe to the podcast on iTunes or Spotify or YouTube or
(54:39):
wherever you go to listen to your podcast #2 if you are in
the market for due diligence services, strategy consulting,
or fractional CMO services, please get in touch with us at
www.hassas.com. And 3rd, please buy a copy of my
new book, Exit Ready Marketing. It covers a ton of concepts that
(54:59):
we take our customers through private equity investors, B
companies, CEO's, operating partners and marketers and
there's a ton of great value in there.
That expands on my previous bookpost acquisition Marketing as
well. So with that said, I hope you
enjoyed today's content and we'll see you on the next
episode.
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