Our Thinking

As General Partners face a liquidity crunch caused by Limited Partner capital calls and declining fundraising, successful managers will be those who can help GPs restructure their portfolios, said Beneficient Managing Director Maureen Downey at the IvyFON Family Office Outlook Forum in San Francisco.

“As the liquidity situation has become more complicated, I think you will see more individuals or professionals who have more structured finance skillset try and solve for some of these capital structural issues,” Ms. Downey said. “No GP who’s trying to raise capital now for the next fund, really wants to mark down the portfolio and show unrealized losses.” 

Ms. Downey participated in a panel on Manager Selection sponsored by IvYFON, a networking firm for family offices. Ms. Downey spoke with three other professionals – Arun Kaul of AK Global Investment Management, Matthew Mangan of K&L Gates, and the panel’s moderator Gary Sawka of Crimson Growth Partners.

Ms. Downey described the liquidity crunch as a result of a retrenchment by non-traditional investors in private equity. Firms that included mutual funds and big investment firms had been drawn by investments into private companies that acted like “private IPOs” keeping companies private for up to 12-to-14 years.

Now, that money isn’t available and venture funds are facing the toughest fundraising environment in 20 years, she said. 

Ms. Downey said that when she looks at secondary investment opportunities, she looks at indicators such as EBITDA, NAV, the price the investing company bought in and when the investment is likely to be exiting. 

“It’s easier to do that with buyout companies, companies with more stable capital structures,” she said. “It’s much more challenging to do that with growth companies or earlier stage companies because their EBITDA or revenue numbers are changing so quickly. And that’s where it becomes quite tricky. 

“That’s also where I think there is a role to play for structured finance where you can kind of share some of the upside with the existing investors, but maybe if you’re coming in as a secondary or someone who’s helping to try to transform some of that capital structure, mitigate some of the downsides.” 

She believes that the current tough fund raising environment will present opportunities for investors who continue to invest. “From my experience when there are really tough fund raising environments, those investors who keep allocating tend to find that those are the better vintage years because those managers work really hard to raise the dollars and are extremely thoughtful about what they invest in, if they have the discipline,” she said.