Apr 17, 2023 · 1h 16m · capital-allocators
Mario Giannini & John Toomey – Private Equity Panel (Capital Allocators EP.309)
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In episode 309 of Capital Allocators, host Ted Seides convenes private equity leaders Mario Giannini and John Toomey to analyze macroeconomic shifts, valuation realities, fundraising headwinds, and disciplined portfolio management strategies across global private markets.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 21.2% of the talking time here. How this is scored →
Ted as informed peer 4.2 Guest teaching 4.5 Guest disagreement 1.9 Ted pushing back 1.8
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:07 Mario dismisses dry powder narrative
Mario rejects the host's premise regarding dry powder overhang, forcefully calling it an irrelevant red herring that misunderstands fund math.
Hardest push from Ted ▶ 43:41 Host challenges definition of conservative firmsTed directly pushes back on Mario's assertion that legacy firms represent safe conservatism, pointing out that those exact firms often proliferate products recklessly.
Biggest teaching moment ▶ 1:01:50 Mario reframes ESG through FTX governanceMario educates listeners by cutting through political rhetoric to explain how elementary governance due diligence would have prevented backing fraudulent ventures like FTX.
Ted holds their own ▶ 34:00 Host presses on marginal manager cutsTed displays allocator expertise by probing the exact decision mechanics behind cutting the marginal manager when subjective conviction is divided.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Intap DealCloud and Celeste Agentic AI Message | 0 | 0 | 0 | 0 | Monologue sponsor message for Intap DealCloud and Admired Leadership. Host-side scores are zero by default. | |
| Introduction to Episode Guests and Market Agenda | 0 | 0 | 0 | 0 | Host monologue introducing Mario Giannini and John Toomey and setting the agenda for the episode. | |
| Macroeconomic Uncertainty and the Private Equity Bull Case | 4 | 4 | 2 | 2 | Host opens with broad macro questions and probes Mario on his contrarian bull case. The guests lay out the macroeconomic uncertainty without confrontation. | |
| Portfolio Valuations and Markdown Realities Across Segments | 5 | 5 | 3 | 2 | Host presses on valuation markdowns across portfolios. Mario emphatically rejects public market claims that private equity valuations are fraudulent. | |
| Financing Markets, Debt Rollover, and Interest Rate Shifts | 5 | 5 | 2 | 2 | Host inquires into debt rollover risks post-SVB. Guests explain why private markets can operate normally even in a normalized interest rate environment. | |
| Elongated Holding Periods and Lower Fund Return Profiles | 5 | 5 | 2 | 1 | Host asks about exit velocity; John and Mario detail how elongated holding periods mechanically compress fund IRRs using historical vintage data. | |
| Deal Activity Pace and Ongoing Valuation Price Discovery | 4 | 5 | 1 | 2 | Host explores ongoing price discovery and deal volumes. John explains the unwind of overvalued assets and broken auction dynamics. | |
| Secondary Market Dynamics and Continuation Fund Headwinds | 4 | 6 | 3 | 2 | Mario bluntly dismisses current secondary activity as mostly talk and no action due to wide bid-ask spreads, while John explains GP-led continuation constraints. | |
| Dry Powder Realities and Sector Investment Focus | 4 | 6 | 4 | 2 | Host brings up record dry powder concerns, which Mario directly rejects as an irrelevant red herring. John highlights healthcare and technology deal flows. | |
| LP Capital Pressures and the Fundraising Crunch | 5 | 5 | 2 | 2 | Discussion centers on the LP capital crunch and fund proliferation. Mario and John point out that GPs over-expanded product lines relative to available institutional capital. | |
| Manager Concentration and Disciplined Portfolio Construction | 6 | 5 | 1 | 3 | Host drills into discretionary portfolio construction and pushes on how decisions are made on the margin when cutting managers. | |
| Ridgeline AI Native Platform Sponsor Message | 4 | 4 | 1 | 1 | Sponsor break followed by a collaborative discussion on the discipline of portfolio construction versus trend-chasing. | |
| Predicting Future GP Winners, Losers, and Governance | 6 | 5 | 2 | 4 | Host provides sharp pushback by asking how Mario defines conservative when legacy Batman firms are often the worst offenders in launching endless products. | |
| Emerging Capital Sources from Wealth and Middle East | 5 | 5 | 2 | 2 | Guests analyze retail wealth and Middle Eastern capital pools, with John detailing HarborVest's experience partnering with Vanguard. | |
| The Rise of Private Credit and Resilient Underwriting | 5 | 6 | 4 | 2 | Host asks about underwriting quality in private credit; guests vigorously defend it while dismissing distressed debt funds as unnecessary. | |
| Co-Investment Trends, Resource Constraints, and Fractured Markets | 5 | 5 | 2 | 2 | Host inquires into co-investment prioritization. Mario explains that most institutional LPs lack the operational resources to effectively execute direct co-investments. | |
| Demystifying ESG as Pragmatic Risk Management | 4 | 6 | 3 | 2 | Mario demystifies ESG rhetoric and uses FTX as a basic governance failure, while John explains ESG as standard risk underwriting. | |
| Geopolitical Friction and Navigating Investments in China | 5 | 5 | 2 | 3 | Host asks about geopolitical implications and how to manage distinct client mandates regarding China exposures across the US and Middle East. | |
| Long-Term Industry Resilience and Macro Policy Headwinds | 4 | 4 | 1 | 1 | Discussion focuses on long-term industry governance advantages and looming regulatory intervention. Both guests remain confident in private equity resilience. | |
| Market Rubbernecking and Addressing Experience Deficits | 4 | 4 | 1 | 1 | Guests provide closing reflections on market rubbernecking and the deficit of down-cycle experience among newer industry professionals. |
Statements from this episode (51)
Toomey: Market Faces Systemic Stress Rather Than Imminent Crisis
“I would describe it as I see a lot of stress in the system. I wouldn't say that we see crisis looming on the horizon, but rising interest rates, particularly at the rate that it occurred, some of the areas where you're starting to see pop up, like in the banki…”
Giannini: Global Economies Face Shallow Recession, Not 2008 Crisis
“I think that inflation peaked a while back and is headed down. I don't know if it'll get down to two percent. I don't think it really matters. I think the most global economies outside of perhaps China are going to go into a recession and it will be a shallow …”
Toomey: Broad Buyout Valuations Declined Only 5% in 2022
“And frankly, we didn't see that underlying in company performance continue to be strong even in the second half of the year. And we saw, I'd say, low single digit declines even at year end. For the broad buyout market, probably plus or minus five percent.”
Toomey: Crossover and Mutual Fund Tech Managers Saw 25% Valuation Drops
“And I think certain managers, particularly the crossover investors, the mutual fund investors that publish their company valuations every quarter now, they really invested into that and took those valuations up to full value. That's where we saw the greatest d…”
Giannini: Private equity marks are legitimate and outperformance is real
“So I think what you're seeing in the private markets is actually what's happening. It's not that the value's Are inflated, or there's a lag factor. They're legitimate valuations, and it's why, by the way, you're in private equity. It just, sorry, it performs b…”
Toomey: Private Equity Use of Lines of Credit Will Pull Back
“What I think we're more likely to see is I think the industry by and large did use lines of credit much more liberally than they ever have, and I do think that's going to pull back.”
Toomey: Venture Debt Market Faces a Retrenchment
“I think the venture debt business, the same thing, you'll have a bit of a retrenchment there.”
Giannini: A Large Number of Venture-Backed Companies Will Fail
“I think certainly on the venture side, there's no doubt that you're going to see a lot of venture companies just hit the wall.”
Giannini: 4% Interest Rates Are Not Catastrophic for Private Equity
“In terms of the financing markets on the regular private equity world, if rates stay where they are, and in my world, obviously, they're not going to go up that much, this isn't catastrophic.”
Toomey: Longer PE Holding Periods Will Delay Realizations
“I think you'll see an elongation of the holding period. So when you look back and you saw what happened, again, it's not the same as the global financial crisis, but there's some lessons learned there. I think when managers are sitting on investments that are …”
Giannini: Recent PE Vintages Will Deliver Lower IRRs and Disappointing Returns
“We will have elongated hold periods, which means IRRs are coming down. Now, presumably the public market returns are also coming down from what they were the last five, 10 years. But I think people need to recognize that. I know general partners in particular …”
Toomey: 2004–2006 Buyout Vintages Had Lower IRRs Than 2007–2008 Vintages
“When you look back, people think the oh seven, oh eight vintage years were the trough years in the bio world, and in fact, they weren't. When you look at the top quartile returns, they got to over two X. Almost 20% IRRs. Median returns were one, eight, one, ni…”
Giannini: PE Deal Volume Slowed but Top Asset Multiples Remain High
“What's happening now is the deal activity has slowed. There's no question, especially compared to what it was in the heyday of 21, 20. What you're seeing in this market today is on the equity side, The deals being done are really good companies. Great companie…”
Toomey: PE Managers Will Face Broken Auctions and Hold Assets
“I think you'll see broken auctions. So managers will bring an asset to market, you know, when they're holding it at a certain multiple and they have certain price expectations. When those price expectations aren't met, they'll sit on it.”
Toomey: Secondaries and Co-Investments Will Drive Early PE Price Discovery
“The secondary market, the continuation fund market, the recap market, the co-investment market, those are all areas of the market with pretty sophisticated investors. That are in the business of creating returns for their investors, of which, you know, how the…”
Toomey: Secondaries Market Is Exceptionally Undercapitalized Relative to Annual Deal Flow
“When you look at the amount of dry powder and secondaries relative to the annual deal flow and you compare it to literally every other part of private equity, it's pretty extraordinary how undercapitalized it is despite all the large size funds that are being …”
Toomey: GP-Led Continuation Funds Face Greater Resistance at Discounts Than LP Sales
“It's a lot easier for an asset owner to decide to sell a portfolio of LP interests at 80 because they have a particular objective in mind than it is for a general partner to convince their existing investors to take the option of selling at 80 cents on the dol…”
Toomey: Continuation Funds Face Headwinds Until Secondary Pricing Reaches 90s
“And I think until we start to see a little bit more normalization of the bid ask spread at numbers, at least in the nineties, not necessarily a part, I think you'll see some headwinds in the continuation fund market in the near term.”
Giannini: Record dry powder indicates a healthy, growing private market
“I would argue it's a sign of a very healthy market and a growing market when you have more dry powder coming in, and that's what's happened in private equity, private credit, all those different illiquid markets.”
Giannini: Private Equity Currently Lacks a Predominant Theme
“One of the curious things about at least this cycle right now is that there really isn't any predominant theme that says, oh, here's an incredible opportunity space like in tech. As John was describing, there are great characteristics behind these industries t…”
Giannini: Private Equity Has Outgrown LP Capacity to Fund GP Ambitions
“The industry has simply outgrown both in terms of its size and its desire for more size. Has outgrown the limited partner capacity to fund it for a period of time. There's just not enough money in the world to give GPs everything that they want, whether it's a…”
Giannini: LP Capital Crunch Will Pressure Private Equity for Years
“So I think this is really where the industry is going to have a pressure point over the next two, three, four years. This is not a, oh, the market goes up 20% and everything's magically solved.”
Toomey: PE Managers Are Fully Equitizing Deals to Refinance Later
“We've seen managers essentially fully equitize their companies today. With the view that they're just going to refinance out in a better market instead of taking it as much or at the same level of debt that they've used.”
Toomey: Market Dislocation Will Force Consolidation of PE Brand Extensions
“I mean, just like in other periods of dislocation in the market, I do think you'll see a consolidation of the brand extensions that we've seen to Mario's point.”
Giannini: PE Investors Should Cut Manager Relationships and Concentrate Capital
“I'm not a big believer in the amount of diversification that most of this industry says you got to have. You have to cut back the number of relationships you have and concentrate them on those groups that right or wrong you believe are going to get you through…”
Toomey: Private markets cannot easily be timed, but markets easily time allocators
“We have a saying here that it's very difficult to time private markets, but it's very easy for the markets to time you.”
Toomey: Venture and Asia require more diversification than North American buyout
“You probably should have more diversification in venture in Asia than you do in the North American buyout market because the dispersion of returns that our QIS team has shown over the 40 years of data that we have says you do want to grab some of that right ha…”
Giannini: Private Equity Chases Shiny Trends Rather Than Building Portfolios
“You're hearing portfolio construction, which is not what this industry talks about. This industry is nothing if not the chaser of the shiniest ball that comes in the room.”
Giannini: Disciplined Portfolio Construction Lags Hype Cycles but Wins Long Term
“There are periods of time when someone who's doing portfolio construction, the way you're hearing here, will underperform because you're not 80% in venture, and venture's having a great time, and everyone goes, how come my portfolio's not up 800%? It's only up…”
Giannini: Newer PE managers will struggle over next two to three years
“I don't think being a newer manager in the next two or three years, unless you have some incredibly great area you're in, or have something unique, are going to do very well. It just seems like the more conservative, I'll call them, organizations are Probably …”
Toomey: Under-allocated LPs can now access previously closed top-tier managers
“If you are a newer investor in the asset class, if you are sitting on an allocation of five, six, seven percent, and you're trying to get to 10, I think it's actually a pretty interesting time to create investable opportunities and to create exposures that, an…”
Giannini: Middle East capital is concentrated but insufficient to fund all GPs
“So there is probably more capital available in the Middle East today than there are in other parts of the world, just in terms of concentration. So yes, there is more. Is it unlimited? Is it enough to fund all the general partners? Absolutely not.”
Giannini: Private Wealth Will Grow for 10 Years but Favor Scaled GPs
“That will continue to be a growing part of the market. It will have hiccups. We saw the ones at the end of last year on some of the name products, and so I think people need to be careful in terms of how they're selling into that market, the investor base that…”
Giannini: Bank retrenchment will drive continued expansion in private credit
“The movement away from traditional sources of credit Is only going to continue. Banks are getting out of that business, and what's happened in the U.S. With Silicon Valley and Signature, I mean, there's just going to be more need for private credit. The amount…”
Giannini: High equity cushions will protect private credit from broad losses
“We have had more equity in companies than we've had in prior cycles. So if we think about the risk to the credit compared to what it was in The risk going forward of deals that have been done is more on the equity, I believe, than on the credit. The credit is …”
Toomey: Covenant-light debt benefits both equity holders and debt lenders
“I think cov light or no financial covenant debt is a beautiful thing for the equity. And I actually think it's good for the lenders too, and allows you to ride out any period of volatility.”
Giannini: A Broad Distressed Debt Cycle Will Not Materialize
“There's not going to be a distress cycle. Sorry, there'll be some distress deals that are interesting, I'm sure, but you sort of had this period where, oh my gosh, things are going bad, let's raise a distress debt fund, and they still are trying, but just tell…”
Toomey: Private equity co-investment deal flow is rising despite overall deal declines
“We've seen already an uptick in the deal flow on the co-investment side. So although overall private equity deals are down, managers, because they're either overcapitalizing from the equity standpoint, or they're reserving more than they once did, or they now …”
Giannini: Most institutions lack the resources to pick direct co-investments
“The reality is for most institutions, not all, but for most institutions, they're simply not resourced enough to do co-investments. And so our view is they either ought to do every co-investment that walks in the door and just make sure you do enough of them, …”
Giannini: Active Co-Investor Demand Per Deal Dropped From 50 to 12
“Three years ago, on any deal, there were a 150 people that said they wanted to do a co-invest on that deal. Maybe 50 of them actually ended up answering the phone and doing it, and now it's down to 10, eight, 12. It has very, very significantly shrunk the univ…”
Giannini: An ESG Filter Would Have Prevented Investors From Backing FTX
“It wasn't a fraud issue. It was a pure governance issue. If people had an ESG filter, they'd have never done that deal ever.”
Giannini: ESG will remain superficial talk or political tools without clear metrics
“Until we get there, I just think ESG will be either a bunch of happy talk on one side, or a bunch of political tools, essentially, on the other side.”
Toomey: Core ESG principles align directly with economic benefit and risk management
“I actually think a lot of the principles of ESG, as Mario articulated in the FTX example, actually align quite well with economic benefit and managing risk.”
Giannini: Global Tech Leaders Will Split Into Regional Entities Like Apple
“If you wanted to make money in smartphones, 20 years ago, whenever it was, you invested in Apple, and you had a global industry leader. That's not going to happen anymore. You will have Apple US, Apple China”
Toomey: Western Capital Flowing to China PE and VC Slowed Dramatically
“I think from an investable universe, half of the private equity in Asia had really ultimately been within China, and a lot of that was actually USD offshore. What's been interesting to watch is the size of the China private equity and venture market from a fun…”
Giannini: PE Outperforms Public Markets Due to Superior Corporate Governance
“Private equity outperforms because it's a better form of governance, period. I mean, I get the leverage and I get all that other crap, but it is a better form of governance. You'd much rather be private than public in terms of your ability to do things.”
Toomey: Private Equity Could Expand Two to Three Times and Stay Healthy
“I think this industry could be two, three times the size than it is today, and still be healthy and functioning and lots of flows of capital.”
Toomey: Private Capital Markets Are Undergoing a Historic Structural Transformation
“We are witnessing the creation of a private capital markets, kind of not dissimilar to what we saw a 150 years ago underneath the old oak tree or whatever tree it was down at the corner of wall and broad.”
Toomey: Market Fixation on Banking Stress Is Stalling Capital Deployment
“So for me, like the biggest sea change has been the rubbernecking, which has kind of gummed up the investable opportunities or the capital that would otherwise flow to what I think of as a pretty expansive universe of opportunities.”
Giannini: Private Markets Face a Widespread Lack of Downcycle Experience
“To me, one of the big challenges has been the relative inexperience of a huge, huge segment of the private markets universe, whether it's at Hamilton Lane, whether it's at our clients, whether it's in the general partner community. When you think about people …”