YouSaid · the spoken record

Wylie Fernyhough

lines on the record: 61
first: 2021-08-13
most recent: 2021-08-13
sittings or episodes: 1
sources: podcast

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“Life is not a straight line. A lot of people, and I would say myself included, come out of college thinking, this is where I want to be one day. These are the exact steps I need to take to get there. And let me tell you, that is not how my life has gone so far. And I think not only is that okay, but it is great and leads to better outcomes. And so whether it's having a mindset that allows you to make certain connections from working in other industries or having some sort of cognitive diversity down the line, I think it actually makes for better decision making and a stronger team. And there's two books out there. I would say range and the diversity bone that talk a little bit about certain aspects of this and where you think you're going to be in 20 years when you're coming out of college or just in general. It doesn't happen and that's okay.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's two folks that pitch book that have had pretty massive impacts on my life. I would say the first is going to be James Gelfer, who was a manager of mine. And recently returned to Goldman Sachs where he was. And he's actually the reason I even started looking into the stakes business. So I had been doing some research on several different areas within private equity. And you mentioned this might be something that you find interesting and jumped on that and went from there. But James is always someone who pushed me to do better, to be better. And I consider him a personal friend as well as someone who really pushed me to be better professionally. And then the other person I would say is Zane Carmen. He's someone who you'll see on a lot of the research reports that I've done, whether it's on stakes or other things and is just an incredibly smart, talented person who I wouldn't have been able to do any of the work I've done without him. And so those two have really changed. I would say the trajectory of my whole career.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“The real answer here is probably drinking a cup of coffee because my brain doesn't work without it. But I would say, especially in the pandemic, exercise in the middle of the day has been a huge thing that has changed the way I work. And so I think it really recharges me and makes it a whole lot easier to work two six hour days than a full 12. So exercise.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just so nice to get out of the norm and be exposed to new cultures, meet new people, and Japan was the first place I really traveled and sparked my love of traveling, and I can't say enough about the people, the culture, the food. I mean, everything was just incredible.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I would say it's travel and subsequently eating. So anytime I'm abroad, love to just go out and eat and meet the people and just have a nice time. And if I can walk around and not hear a word of English being spoken, I know I'm in my happy place”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think a lot of the large private asset managers are going to sell a stake between here and the next five years. I think it's become very accepted broadly. And I think we're going to see some sort of transition in terms of succession plan for a lot of these founders. And I also think we're going to see a good chunk go public. I truly believe that after EQT, if Bridgepoint does blew out, I think the landscape is truly changing. And I think that's going to be reflected in about five years.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think it really depends on what they're looking to do. Talking with a lot of large LPs, especially on the stake side, they see it as pretty attractive. So let's say I was talking to a large pension fund that was looking to be a, call it strategic LP in a mid-market fund. And so they were looking to deploy capital across this firm's first two or three funds and then have a special relationship with the GPs that sold a stake into this fund. And so there's going to be, let's say, 10 to 15 mid-market firms and then coming in as a strategic of maybe getting a co-invest in that deal, getting co-invest just in general additional rights. And so it really depends on what you're trying to do. Or if you're just trying to have access to broader private equity growth, if you will, I think there's a lot of areas and opportunities, whether it's in the state side or just buying a basket of publics.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think an interesting one is going to be the publicly traded PE firms. I think we've seen Blue Owl. We're seeing Bridgepoint talk about going public. There's rumors that TPG was looking at some sort of SPAC deal or potential IPO. And I think in general, we might see that second wave of private equity manager going public that we saw in the early to late 2000s where Blackstone KKR, the household names, all went public. I think in general, we've seen all those firms get rerated higher. A lot of these large GPs of, let's call it, 50 billion or more in AUM are seeing the attract evaluations that you can get in the public markets. And true, there are additional burdens that come with being public. But a lot of these large firms have figured out ways to seemingly satisfy the shareholder base while also satisfying their LPs and continuing to get higher returns. And if you're able to get that healthy valuation in the public markets, I think a lot of the founders are going to say, why wouldn't I do that?”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think what's happening there is maybe similar to what's happening in the Stakes area, which is that there's now more liquidity options. And I think we're really seeing the value of bringing in these outside partners, whether it's Dial, who's also jumped into the sports business or Arctos or some of these other firms that are buying stakes. And I think it's also another area where we need additional buyers to continue to push up the price of some of these franchise valuations. Once you get to five, six, seven billion dollar valuation, it's tough to think that there's going to be any number of Jeff Bezos that are going to be able to”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Just from the data that we have on that, it's relatively newer, especially on the sponsor side that we're seeing private capital as opposed to hedge funds. I think it's been around in hedge funds for a lot longer. But in looking at some of the firms that have been seeded and the success rate has been relatively high of getting onto that fund too, even up to fund three, decent-sized step-ups is just a lot of work, but I think especially when you're a cedar in private equity, let's say, the amount of opportunity that you get to look at these guys are looking at 40, 50, 60 new managers a year and they'll maybe see two, three. And so you're able to really pick the best of breed that are coming to you, but I think that's also the other thing that maybe not enough people talk about in the space is that there's always going to be the pedigreed spin out of HIG or wherever that doesn't need seed capital. And so you're picking the best that need you, but there's still, I think, quite a few really high quality managers looking out there for seed.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“More difficult for first time managers than it's ever been to raise a fund. Just the amount of established firms out there, the quality and level that you have to be at to raise a first-time fund is harder now than it's ever been. And we see that in the numbers of just over the last 10, 15 years, the number of first-time funds has continued to come down in terms of overall fundraising. But I also think they have more options now. And so whether it's David Rubenstein talking about how his family office does a lot of work with first-time funds, we see a number of these higher profile family offices doing quite a bit with first-time funds especially. There are quite a few consultants that have emerging manager programs. You have several sponsors now that are doing some type of seating deals where they're seeding the actual GP, taking a stake, as well as then investing a good chunk into the fund. And so there's a lot of options out there.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think the interesting thing about that is not just how large of a number it is, but that this is growing every year. And so every year there are firms that graduate from the middle market into the dial territory. And the same can be said growing from small to mid-market. So there's 600 or some firms out there that we categorize across buyout infrastructure, credit, real estate, et cetera, just in the mid-market.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a question I would say comes up pretty much all the time. And honestly, just wrapping up some research on that and the numbers surprised me. So just to kind of give you a frame of reference, if you look at the big six public private firms in the US, so talking Blackstone, Blue Ow, KKR, Apollo, their market cap is somewhere in the 250 billion dollar range. And then when we look at the top end as we categorize it across credit firms, buyout, et cetera, we think the largest firms out there have a equity market cap of somewhere in the 350 billion range. And we think the mid-market is even a little bit bigger at around 400 billion. Now, not every firm in the mid-market is going to sell a stake. And let's say a stake is 20% on average, but we still think there's somewhere in the area of $30 to $40 billion in the mid-market that can be deployed. And at the higher end, we think the number is even bigger, somewhere around”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“One thing is the fund structures. And so an interesting thing just to think about is that a lot of these mid-market firms that were out there raising capital have been raising it in typical closed-end funds, but maybe that are only meant to go 10 or 15 years. And so it'll be pretty interesting to see what happens when it comes to liquidity time. Whereas on the top end, dial, Blackstone, Petersill, they're raising perpetual life vehicles that they can effectively buy a stake in a Silver Lake or whoever and hold that into perpetuity. And so I think it's something that GPs, especially when you're selling, are going to have to think about is this is going into a fund. What's going to happen in 10 years? Now, that doesn't mean you can't have some type of continuation fund or roll it into a special purpose vehicle that becomes perpetual, but it's something I think interesting to think about, especially as there are some strategics targeting that mid-market as well.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“These mid market funds are still holding quite a few high quality assets, and they might be rolled into some sort of special purpose or perpetual life vehicle where LPs then get the option to either cash out or kind of roll into that.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say an interesting route also is just individual sales. And so whether it's that interesting sale that we saw from dial selling a chunk of their steak in Silver Lake, that's an option or strategic coming in and buying a whole thing. Or we could see entire portfolio sales. And so whether it's going to be Petersill one where we saw a pretty large portfolio sale to AMG, I think that's an option. I would also jump in and talk about the secondary market. And so whether it's the LP-led secondary market, which from my understanding there's quite a bit of interest around of a lot of LP is just directly buying and trading potentially their ownership in these GP stakes funds. And there's been a number of them out there that have taken place, whether it was a 50 million or 500 million dollar stake. And then the other thing is on the GPLED side, a lot of these are not perpetual life funds. I think we're going to get to some point eight, 10 years down the road.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is probably the first thing that LPs ask me every time we discuss how to think about the stake space. And I think there's this notion that these are highly illiquid assets, but in reality it's not quite true. And I would say they are definitely more illiquid than shares of BX or KKR, but there's quite a few options out there when thinking about how to get out. So these assets have pretty steady high cash flow generation and a relatively predictable. And so when rolled into a portfolio of eight to 12 stakes, as you might find, there's options for securitizations, there's options for dividend recaps. There's quite a few there that can expedite some of the monetization aspect because you can go out and refinance some of these at a five to seven percent cost of capital and you're putting that against something that's delivering 15, 20 percent plus IRRs. And so Dial and Peter Sill have bought done this and I think we may see more of that.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I would say the return on average has been pretty attractive, and it is difficult because a lot of that information isn't out there in terms of purchase price and valuation now. We've run some of our own models and we've seen that in a lot of cases that 15 to 20% that you could expect in buying large firms has actually been even better. And that's no surprise. I mean, if you bought a stake in Vista back seven, eight years ago, you've probably done pretty well. But in general, there's also been the dispersion, as kind of we talked about, in whether it's buying into an energy GP or whether it's buying into a firm where the founders eventually split and go separate ways. There certainly have been some negative, but I would say on the whole, it's been pretty positive. Somewhere in that 15 to 20, we've seen a number that have probably hit the 30 plus mark, but relatively attractive returns.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, as you sorted through all of this, all of these deals that have happened, particularly over the last five or six years, how have the returns looked both in terms of on average and then how wide is the dispersion for purchases of these stakes?”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Buyout fund, and they're saying, Hey, I'd love to come back and raise a smaller mid market fund, or I want to raise a credit fund, and I'm looking to sell a stake to X, Y, or Z midmark, GP stakes firm in order to help get to that next step.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's the really interesting thing that performance of the fund. And when we looked at this, we looked at private equity credit and real estate. And effectively, the proportion of top quartile second quartile, et cetera, funds is the exact same before and after. I mean, there's a marginal shift. You can chalk that up to data counts just as much as you could chalk it up to actually a notable shift. And the interesting thing that I saw was on the AUM side, I was actually surprised to see that step-ups and AUM growth didn't expand at the same rate that I thought it would. So step-ups actually were the same, if not slightly lower, after selling a stake. But what we did see is that there was expansion in terms of the number of strategies. And I think in a lot of times that's kind of to be expected because at least some of the GPs I've talked to recently, you know, it's a mid-market GP who has a two and a half, three, four billion dollar”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“This outside buyer has done due diligence on the same manager that you want to have a relationship with for 20 plus years and they've validated your investment thesis. They might help this firm get to the next generation in terms of succession planning, but also, yeah, totally understand the fact that now that they have an outside shareholder that might be something that is less than ideal in some cases. And I think most institutions have changed how they view it, but there's at least one high-profile endowment out there who still has a pretty negative view.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would agree with you that especially, let's call it 10 or 15 years ago, there was a broad concern by a lot of LPs about these types of transactions, whether it was now they're no longer going to be incentivized to really continue to grow, manage, and operate this firm, or whether they're going to be incentivized to just collect AUM above all else now that they're answering to another shareholder. And I think in general, these GPs, these founders, they're still highly motivated and incentivized. to continue to do exactly what they had been doing, which is to grow sustainably this business because the vast majority of their net worth is we've seen a good amount of LP shift in terms of how they think about these deals. And so for a good amount of time, these deals were looked on slightly negatively by a lot of LPs. And I think in talking to a good number of them now, they see it maybe with some sort of indifference. They see the positive, which is that it is effectively”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the rub and the big question mark on all of these deals from the allocator community is sort of what happens to the manager after they cash out or conduct one of these transactions, have outside ownership. And I'm curious how it's played out in practice.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Think in general, the type of product mix and maybe how the organization is run might be slightly different, whether it's, I believe KKR recently made a slight change and is maybe allocating a higher percentage of their management fees to the public shareholders, which public shareholders love because it's more predictable and maybe a little bit more of the carried interest, the more variable aspect to the deal makers and employees, which then maybe incentivizes them a little bit more as well. But I think those are small changes around the edge at the end of the day performance is all that matters.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think there's certainly more pressure to change the business model once you go public. And I think we've seen that with Carlisle. We've seen that with Blackstone, a greater focus on fee-related earnings, on growing the number of strategies. And I think when you sell to some of these GP stakes, you know, the more private equity style owners, and whether it's a strategic, they're more focused on keeping the core business, they typically want to see a lot of carried interest. It's all focused in a different aspect. But I think the underlying thing is that performance is still king no matter what. And so whether it's Blackstone and focusing more on products that have higher fee rates, I think at the end of the day, each of them know that if they stop performing, then this business effectively is going to stop because there's always going to be a manager that's going to be able to deliver some sort of outperformance. And so I think...”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of an IPO, firm merger, acquisition, divestiture, tag along sale rights, and on and on. One other element, I would say, is to know whether these rights transfer to a new owner or whether they have to be renegotiated upon a sale or kind of other monetization option. All of this is to say that these deals are totally bespoke and the legal protections built into each of them is as well, and it's important to have a pretty solid understanding of kind of what's involved in one transaction and maybe how that will affect things going forward. We've seen in some cases high deal prices maybe lead to wagering or horse trading between trying to get the buyer to maybe get a few more rights or certain elements within a contract if they're wanting to pay up and help that GP reach a certain price that they're looking for in terms of selling a stake.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“One other interesting aspect is the information and management access, which are also included. This can become a sticky point, and one recent case we saw this highlighted was dial where it had some lawsuits filed by two portfolio companies sixth street and gollub to prevent dial from potentially sharing important and critical information with Alrock, who those firms view as a competitor. So some would argue this whole lawsuit, they were kind of political theater, but it does highlight how important the contract and the laws and kind of minutiae of some of these deals are. Finally, I would say there are some economic elements to be aware of, including protections against economic leakage and dilution. Deals will usually contain consent rights regarding nonprorata distribution of equity, issuance of securities that rank senior to those issued to the stakes buyer, registration rights in the event.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, in general, these are non-voting minority deals. And because of this, you might find similar rights as you would expect to see in venture or other growth equity rounds. But GP Stakes deals often have more robust protections than these standard deal types. Since GP Stakes buyers are typically the only outside financing entity, they seek more protections, which is”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a few other options. I would say it's really on the either pref side or debt. On the pref deal, it's typically going to be a five-year deal where the lender is trying to make one and a half times their capital back. And for some type of growth capital where you don't want to give up equity, that can be an attractive route. And then on the debt side, it's a little bit more difficult. There's not a lot of lenders out there that are doing a lot of underwriting for private equity firm style does have a large fund on that. But I'm not sure how many they've been able to deploy into. And I think on the equity side, a lot of firms look to sell that because you get that partnership aspect that you really don't get with some of these firms that either do pref or potentially debt. Sure, you're giving up a stake in the management company, but hopefully you're getting back more in terms of the upside, not to mention the capital that you get, which in a good amount of the time, at least some of that is rolled into the balance sheet to up the GP commit or.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some people in the next generation, some of them find it attractive in that you are partnering with, again, some of these larger GP stakes buyers. And they really see it as someone who's going to help shepherd you to the next wave of growth slash ownership because these are perpetual deals. I mean, when Dial buys in or when any of these large firms buy in, they buy in with the thought that we're going to hold this thing for 20, 30 years, even though maybe it's only underwritten out to 12 or 15.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think the interesting thing is that each of those models are totally valid and can work. I think one of the guests you had on recently said it pretty well, which is that typically the next generation of non-founder doesn't quite expect to get compensated to the same level. And I think that's reasonable. And I think also whether it's the publics where rather large portion of the outside ownership is shareholders or whether it's selling a stake to dial or whoever. I think they're able to still manage effectively having that outside ownership as well as being able to try to grow the business because typically the vast majority of their wealth is still going to be in these businesses. And a lot of times some of these deals can help push equity down further to the next generation. There are options to potentially buy some of that back when there is a succession plan. I think in general talking to”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“As I've had these conversations recently with a lot of these legendary private equity managers, a lot of them have at some point in time sold a stake. And there does seem to be this question. The founders who built this franchise saying, hey, this is our way of cashing out and basically creating a purchase price, certainly in the public companies, to trade out their ownership. What type of dynamics does that create if you look at the big public companies of Carlisle compared to a Bain Cap where it's still a private partnership between that founding layer and that next generation of leadership in the organizations?”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“You get to the later part of your career, look to monetize on some of what you've made just because whether you go the Bain model, which is more of that private partnership or you go some of the models of these other firms, I think it's very reasonable to look for options to monetize.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I would say it's a couple things. I think in general, you're looking for some sort of partnership. And in a lot of cases, one thing that's really interesting is that these deals don't always go to the highest bidder just because of the value add that some of these teams are able to bring. Now, maybe the second or third highest bidder was still close, but it's not that every dollar effectively is the most important. And so I think there's a huge value add proposition here of similar to the capital constellation model of bringing in several of these large GPs and being able to share a best practice, being able to share strategic LPs, being able to have great advice when it comes to launching a new credit fund, or how should you be thinking strategically or how do you retain senior talents? And I think the other aspect is taking a little bit of chips off the table. I mean, I think that is totally valid. And when some of these founders have created institutions that are worth a billion plus dollars, I don't think it's unreasonable to, especially”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“I want to turn a little bit to the manager's perspective if these deals coming for investors to have such attractive risk-reward characteristics, why are these savvy investors who are running these management companies doing these transactions?”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“RDV Corp. And then the other one in the mid market would be Stony Rock Capital. So quite a bit. On the smaller end, I think a couple interesting names to look for are volunteer park capital, which is actually here in Seattle. And then Kudu, they do some RIA investments in the private capital space, but there's quite a number of names out there.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“The first one probably have to name is Bonacord Capital. So they've done quite a few deals. The most notable of which is Monroe Capital. So it's about a $10 billion firm and pretty sizable deal. You have to imagine they were competing against Dial Blackstone Petersill on that size of a transaction. And another name in the space is Azimet Alternative Capital Partners. So they're part of a larger Milan-based firm. And so they're actually investing some balance sheet capital and then using some of the distribution with these asset management network that they have to distribute some of these products, if you will, of the firms they buy in. A few of the other sponsors, Hunter Point Capital, which a lot of questions on what they're going to do and haven't really heard too much about them. We have Investcorp, we have Ridge Lake, which is an interesting joint venture from”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“She mentioned dial, now blue owl, Peter Sell, Hank Oldman, and Blackstone. Who are the other players in this game if someone was interested in looking maybe in that mid-market or the smaller end of the spectrum?”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“What comes from the management fees, and about 45 of that, what comes into the balance sheet. And then so the management fees might sit in the credit special sits bucket because you can think it's a pretty steady contractually obligated return. Whereas the balance sheet aspect and the carried interest is going to be more just broad private equity other bucket. And so I think that was a pretty interesting one. But in general, if you had to place it in one, I think growth equity does make some sense. These are minority stake investments. typically going to be used for some sort of growth action.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“A great question, and one I'll say there isn't really an answer for, but I've heard everything from some investors looking at it as a type of fee reimbursement. And so you're effectively being paid fees and carry just as you pay out. And so that's how at least one or two institutions have thought about it.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Set up in general is you're getting a good chunk of those management fees which are locked in over at least a five-year period. And so in a lot of these deals, the worst case scenario is you buy a stake right as they're closing a fund. Let's say that fund doesn't do well. Typically, private equity firms are able to get at least one more fundraise in. Might not be a large step up, but if you're able to at least get that second fund in after buying a stake, you're pretty much guaranteed to get your money back just off management fees and some of the maybe in-ground carry. And so, you know, the return profile, even if it's a failure, it's not terrible, especially when you can compare that to what might happen in a buyout where return of zero.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say it's tough to tell because, especially on the smaller end, there haven't been quite as many deals. I think that's a semi-newer spot. And so there are a few dedicated players in that space. And from what I've seen, the hit rate is been pretty good only because there are so few players. And there's quite a few firms that are really interested in those deals. And so you can either take some of these stakes or you can do, let's say, an accelerator round, which might be closer to a seating type deal. But I think in general, the hit rate has been pretty attractive on the mid-market space. I would say it's been like that as well, only because, again, there's just not as many buyers as there are sellers. And so the opportunities you get to pick through the cream of the crop, at least currently. And then at the top end, honestly, the hit rate is still pretty high. I would say it's a 75% plus hit rate of you're getting at least one and a half to two times your money. And that's the interesting thing about how these deals are.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Go through each of those on the larger managers you've established organizations you can imagine a lot of stability, large management fee stream incentives can come and go, but they're market sensitive, pretty easy to understand as kind of some type of cash flow purchase. Does it look like in terms of, let's say, success rates or more likely failure rates? Let's start with that small end of the spectrum and those types of deals.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Seeing return expectations kind of line up with the figures that have come out with kind of what we expect. And it's, again, kind of those IRRs peak in the beginning come down and then kind of gradually hopefully will rise to that 20% plus mark as these firms they've invested in continue to do well.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, I think you're pretty well compensated. In terms of the return profile, one thing to also look at is the cash flow profile. So you're getting nearly half the return from yield, and the other half is from appreciation. On the smaller deals, everything just kind of goes up. And so the growth potential and the yield goes up just because pricing is a decent amount lower. And so you may be paying single digit next 12 months economic net income in some of these deals on kind of the lower mid-market and even into the smaller end. In terms of the returns that we've seen on some of these previous funds, we just aren't there in terms of being able to really judge the performance. Many of the earlier deals and earlier funds were more heavily weighted towards hedge funds, and so I think it's going to take a little bit more time before we can really judge, dial Petersill and Blackstone. on their private capital investments.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really large established managers and the risk there just isn't maybe all that much. When you look more at the mid-market, you're looking at 20 to 25% gross IRRs. And again, I think that's kind of the sweet spot because you're getting paid a decent amount more, especially on the cash flow yield side with the lower pricing. But there's also more growth potential. It's easier to take a $2 billion growth fund to three and a half billion and then $5 billion a couple funds on rather than taking a $10 billion buyout fund to $16 and then $22 billion. It's just easier to compound those smaller numbers. Moreover, when you look at the research that we've done in the space, you're really not taking on all that much more risk. And so I think you're well compensated for that marginal increase. And then on the small side, you're really hoping to get a 25% gross IR, and that's where I would say you are taking on a decent amount of risk.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Typically, a one man show. And so there's a little bit less risk in some of these private capital firms that are able to build up these large businesses in which you're not fully dependent on one person. And so there's been at least one semi-high profile case of that semi recently where a firm backed a hedge fund and then the two managers have now split. And so there are also words and legal ways to help the investor in that case. In general, those are some of the risks, I think, to look out for. On the return side, I think you really have to look at the three different spectrums. There's the top end, there's the mid-market, which I think is kind of the sweet spot in the risk return spectrum, and then there's the smaller end. So at least on the top end, you're looking at somewhere around 15 to 20 percent gross IRRs, which is pretty decent considering you're looking at investing in a firm like BC Partners or HIV.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the risk return profile, I would say, is certainly interesting. I would argue that it is quite compelling. In terms of risks, there's really three or four. One of them is going to be overpayment. And with overpayments, sometimes returns can lag pretty substantially. And I think we saw one or two examples of that. I won't name names, but especially going into the IPOs of the mid to late 2000s of some of these large firms, I would say another thing is looking at the trends of where private capital is going. So I think there have been a number of deals, let's say, in the energy space that were priced pretty fully when they were done. And then looking back at that now, maybe haven't worked out quite as well. And so I think it's really important to understand where the industry is going and invest ahead of that. Another risk I would say is looking at personnel issues. One reason why the stakes business has moved away from hedge funds is that in hedge funds, it's”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so it's a bottom line stake. It's a minority equity stake in these managers. And so you're getting a piece of the profits, which is really derived mainly from two parts, but also a small chunk of the balance sheet investment, which effectively is a slice of the carried interest that the manager makes and management fees.”
2021-08-13 · Capital Allocators · Wylie Fernyhough – Private Equity Stakes (Capital Allocators, EP.208) · IDENTIFIED FROM THE TRANSCRIPT · source