Where tech is steering private equity

When you think about the public markets and the private markets, in the public market's you've got 90% of the money chasing 10% of the global investment opportunities, and in the private markets you've got the opposite, -you've got 10% of the money chasing 90% of the opportunities. The room for growth in private markets is absolutely massive.

• -Hugh MacArthur

Great pod-listen below if you're looking to bone up on where PEG fundraising is going, what happens to GP's who don't hit their hurdles and how PEGs are likely to continue to go DTC moving forward with new tech solutions through 2025 & beyond.

Hugh MacArthur Chairman of 贝恩公司 's Global Private Equity Practice, and Steffen Pauls , Chairman and Co-CEO of Moonfare run through the landscape of current challenges for PEGs such as the slowdown in exits and longer holding periods affecting IRR.?

The conversation goes into the growing importance of "speed to insight" in sourcing & deal origination, and the trend towards tapping into the secondary markets for liquidity as private equity firms ramp up targeting retail investors.?

They do a great job diving into all things tech and disruption, including blockchain and AI, as it relates to ongoing efforts to democratize access to private equity investments.

Some of key takeaways they covered:

The Exit Slowdown and Portfolio Management Challenges

• Double the Workload: Private equity firms are now managing more than double the number of portfolio companies compared to a decade ago.
• Strategic Management: Companies need ongoing management, capital infusions, and strategic guidance to thrive.
• Robust Support Systems: Effective value creation requires board-level talent and external partnerships.

Implications for Internal Rate of Return (IRR)

• Longer Holding Periods: The current slowdown in exit activity could impact funds' ability to meet their 8% hurdle rate.
• Cyclical Nature: While some firms may struggle, the private equity market continues to grow overall, creating opportunities for new entrants and innovative strategies.

The Growth of Secondary Markets

• Enhancing Liquidity: Expanding secondary markets is crucial for providing investors with the flexibility they need.
• Market Adaptation: As more individuals invest in private assets, the demand for liquidity will increase, driving market changes.

The Trend of Private Equity Going Retail

• Tapping into Individual Wealth: Private equity firms are increasingly targeting retail investors as a source of capital.
• Educational Importance: Many high-net-worth individuals are unaware of the private equity landscape and the opportunities available to them.

The Role of Technology in Private Equity

• Blockchain and AI: These technologies have the potential to streamline transactions, reduce costs, and revolutionize the investment process.
• Efficiency and Productivity: AI can significantly speed up decision-making and sourcing processes, improving the return profile of funds.

The Future of Democratization in Private Equity

• Greater Access: The ongoing trend of democratizing access to private equity envisions a future where individual investors have more opportunities to participate in private markets.
• Educational Initiatives: Providing clear and accessible information is crucial in empowering individuals to make informed investment choices.

Timestamps

Introduction to the Episode (00:00:04) ?Overview of the discussion between Hugh McArthur and Stefan Pauls on private equity topics.

Exit Slowdown Insights (00:00:46) ?Discussion on the implications of the exit slowdown for private equity firms and their portfolio management challenges.

Holding Periods and IRR Impact (00:02:56) ?Exploration of how longer holding periods may affect internal rate of return (IRR) for funds.

Secondary Markets for Liquidity (00:04:59) ?The potential for expanding secondary markets to enhance liquidity in private equity investments.

Private Equity Goes Retail (00:07:09) ?Examination of the trend where private equity firms are targeting retail investors directly.

Building Portfolios for Private Investors (00:10:29) ?Advice for smaller firms on how to leverage the democratization of private equity for individual investors.

Role of Technology: Blockchain (00:12:15) ?Discussion on the impact of blockchain technology on the private equity investment process and its current hurdles.

AI's Impact on Investment Processes (00:15:12) ?Exploration of how AI can enhance productivity and efficiency in private equity investment processes.

Future of Private Equity Democratization (00:17:38) ?Speculation on the evolution of democratization in private equity over the next decade.

The Future of Private Markets (00:18:06) ?Discussion on the increasing access individuals will have to private markets in the next decade.

Challenges of Public Markets (00:18:20) ?Exploration of the decline in public companies and the shift towards private market investments.

Growth Potential in Private Markets (00:19:17) ?Analysis of the imbalance in investment opportunities between public and private markets.

Education and Confidence in Private Investments (00:20:18) ?Emphasis on the need for education to build confidence in private market investments.

Conclusion of Discussion (00:21:00) ?Closing remarks expressing gratitude for the insightful conversation on private equity.

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