Jun 21, 2021 · 1h 8m · capital-allocators
Private Equity Masters 1: John Toomey – HarbourVest Partners (Capital Allocators, EP.200)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this inaugural episode of the 'Private Equity Masters' miniseries, host Ted Seides interviews John Toomey of HarbourVest Partners to examine the evolution of modern private equity across primary fund diligence, direct co-investments, secondaries, and global expansion. Toomey shares institutional frameworks for operational value creation, structural liquidity innovations, partnership stewardship, and foundational leadership lessons cultivated over a 25-year career.
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 19.1% of the talking time here. How this is scored →
Ted as informed peer 5.2 Guest teaching 2.7 Guest disagreement 0.2 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 40:51 Refuting the secondary discount misconception
Toomey directly challenges the common industry assumption that secondary returns are primarily driven by buying at deep discounts rather than asset and manager quality.
Hardest push from Ted ▶ 56:03 Challenging return expectation adjustmentsTed presses Toomey on whether allocators are actually recalibrating their expected PE returns down given universally elevated entry valuations.
Biggest teaching moment ▶ 16:12 Multi-year pipeline diligence versus PPM timingToomey explains that institutional primary diligence must track GP forecasts years before a PPM is printed to establish true forecasting credibility.
Ted holds their own ▶ 42:15 Framing sponsor-to-sponsor transactional frictionTed articulates the core inefficiency of PE firms continuously trading assets between funds, setting up the exact rationale for modern continuation vehicles.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Sponsorship Announcements: iConnections and Northern Trust | 4 | 1 | 0 | 0 | Ted introduces the miniseries and guest John Toomey before reading sponsor messages. Toomey cordially shares his background transitioning from atmospheric chemistry to finance and joining HarbourVest in 1997. | |
| HarbourVest's Early Offerings and the 1990s PE Landscape | 5 | 3 | 0 | 0 | Ted prompts Toomey on the early market structure and manager landscape of 1990s private equity. Toomey breaks down how simple the four commingled offerings were compared to current specialization. | |
| Due Diligence Evolution and Early Culture at HarbourVest | 5 | 3 | 0 | 0 | Ted inquires about the diligence evolution. Toomey explains five structural changes, illustrating with a personal anecdote from his first investment committee memo. | |
| Operational Value Creation Versus Multiple Expansion | 6 | 4 | 0 | 0 | Ted probes into quantitative diligence on value drivers like multiple expansion vs EBITDA growth. Toomey explains how HarbourVest tracks multi-year pipelines and tests GP credibility against historical projections. | |
| The Rise of Co-Investing and Dedicated Execution Teams | 5 | 3 | 0 | 0 | Ted asks about co-investment deal flow 24 years ago. Toomey charts the origin of co-investments from GP syndication necessity to LP fee-reduction demand. | |
| Sourcing Discipline and GP Partnership in Co-Investments | 6 | 3 | 0 | 0 | Ted compares single-pool CIO frameworks against multi-strategy platforms. Toomey explains how dedicated teams prevent internal manager bias across primaries and co-investments. | |
| Independent Underwriting and Global Reference Networks | 6 | 3 | 1 | 1 | Ted tests whether HarbourVest underwrites the manager track record rather than the asset. Toomey clarifies they do both, leveraging vast secondary buyout networks for off-list referencing. | |
| Alignment on Co-Investment Exits and Sponsor Rollovers | 5 | 2 | 0 | 0 | Ted asks about exit mechanics in co-investments. Toomey details how HarbourVest aligns with sponsor exit timing and occasionally rolls into subsequent sponsor rounds. | |
| Co-Investment Downside Lessons and Walking Away from Impaired Deals | 5 | 3 | 0 | 0 | Toomey highlights the Wayfair (CSN Stores) success story and candidly discusses troubled co-investments during downturns where HarbourVest chose not to bridge bad deals. | |
| Preserving Program Independence and Managing GP Relations | 6 | 3 | 0 | 0 | Ted asks how negative co-investment experiences impact primary fund commitments. Toomey notes that while cross-strategy data informs diligence, each investment mandate operates strictly independently. | |
| Continuation Funds, LP Tenders, and GP-Led Solutions | 5 | 4 | 1 | 0 | Toomey outlines the evolution of secondary markets from LP distress sales to GP-led liquidity tools like LP tenders and continuation vehicles, debunking the myth that returns only stem from discounts. | |
| Structural Innovation and Atomization of Private Equity Access | 6 | 3 | 0 | 0 | Ted notes the historical issue of PE sponsors trading companies amongst themselves. Toomey conceptualizes how continuation funds offer atomized access to compound winners longer without frictional sale costs. | |
| Global Footprint and Developing Private Equity Ecosystems | 5 | 3 | 0 | 0 | Ted asks about global differences across buyouts and venture. Toomey provides context on the rapid maturation of Asian PE ecosystems, particularly China venture and developed Asian buyouts. | |
| Management Best Practices: Stewardship and Committee Decision Scoring | 5 | 3 | 0 | 0 | Ted asks about management best practices absorbed from top GPs. Toomey describes adopting numerical voting scales (1-5) from TA Associates to eliminate lukewarm consensus approvals. | |
| Navigating Downsizing, Partner Compensation, and Firm Culture | 6 | 3 | 0 | 0 | Toomey recounts learning from peers about managing talent during fund contractions and discusses HarbourVest's institutional scale and strategic partnership with Vanguard. | |
| Elevated Multiples, Underwriting Discipline, and Manager Professionalism | 6 | 3 | 1 | 1 | Ted asks whether elevated entry multiples have forced LPs to lower return targets. Toomey points out that while public returns compress, allocators still expect PE to generate outsized absolute returns. | |
| Macro Risks: ESG Standardization, Globalization Headwinds, and Regulations | 5 | 3 | 0 | 0 | Toomey highlights macro risks, emphasizing ESG non-standardization between European and US allocators, and operational friction caused by deglobalization headwinds. | |
| Closing Questions: Meteorology Passion and Daily Routines | 4 | 1 | 0 | 0 | Ted transitions to closing questions covering Toomey's meteorology hobby (family nickname 'Tank Weathersfield'), daily dog walks, and a humbling career lesson on overconfidence. | |
| Philosophical Influences: Aspen Institute and Plato's Cave | 4 | 1 | 0 | 0 | Toomey shares his favorite philosophical text (Plato's Allegory of the Cave via Aspen Institute), the importance of acknowledging everyone in an organization, and career advice regarding non-linear growth. |
Statements from this episode (33)
Chinese venture capital market will eventually match US in size
“It's, if it's not yet, it will be as big as the US market, but it really hadn't started yet.”
Toomey: A large buyout fund in late 1990s was $1B
“If you think about that, I mean, a large buyout fund in the late nineties was a billion dollars in size.”
Toomey: In 1997 PE Diligence Relied Almost Exclusively on Manager-Provided Data
“If you think back to the 1997, it was really just, it was a very relationship heavy You largely had the data that was given to you by the manager.”
Toomey: ODD, ESG, and D&I Were Absent from PE Diligence 20 Years Ago
“And then I'd say the ODD, ESG, and DNI, those are all new dimensions that are very important today that really weren't part of the consciousness of us or even the industry 20 years ago.”
LPs starting diligence when a private equity PPM prints are already late
“So if you're showing up with the PPM as it's printed, you are late. Like you are at the back of the line.”
Toomey: Best test of GP credibility is tracking multi-year commitments
“To me, there's no greater way to measure or test a manager's credibility Then to verify that they did what they said they would do a year or two or three ago.”
Toomey: Private equity co-investing only became an asset class in the past 5–10 years
“That market has really become a bonafide sub-asset class unto itself. That's really only a five or 10 year development. In the nineties, it wasn't even a cottage industry. It was nascent.”
LPs demand co-investments to blend down overall private equity management fees
“The other reason the co-investment markets exist today is general partners know and limited partners demand that, hey, look, this is just part of our relationship, and I'm going to invest X into your fund, and I'm going to pay one and a half and 20, and on the…”
Generalist relationship managers inherently overvalue their own GPs' deals and secondaries
“The person who was on that point on the manager relationship, everything that that manager, this is the best set co-investment opportunity. We've got to buy this secondary at one Oh five because they're such a great manager. And so really from the beginning, W…”
Toomey: HarbourVest commits to giving GPs a 24-hour co-investment response
“On the co-investment side, what we found they value the most is, frankly, a quick no is always better than an elongated no. And so we just have this commitment, you know, 24 hour period, we will get back to the manager with a quick read.”
Toomey: Secondary buyouts in private equity did not exist before 2002-2003
“And the fact that for the last 20 years, there's been secondary buyouts in this industry. That didn't exist before 2002, 2003.”
Top 25 private equity managers globally now average seven distinct product lines
“The top 25 managers in the world actually have, on average, seven product lines. That's up from two 10 years ago, and it's up from one 20 years ago, right?”
Toomey: HarbourVest rarely holds co-investments after lead sponsor exits
“We have no Likely no desire to remain an owner of those investments after the lead sponsor has exited.”
HarbourVest invested $50M to $60M into Wayfair's predecessor before its IPO
“We invested 50 or sixty million dollars out of that 200 into CSN stores, which became a rebranded as Wayfair, and a couple years later went public.”
Co-investments where the lead sponsor holds only 20% lack sufficient alignment
“And the lead sponsor, this again, back to alignment, if the lead sponsor is 20% of the capital and co-investors are 80% of the capital, that's not very good alignment.”
Toomey: HarbourVest walked away from impaired co-investments in 2001 and 2009
“We certainly have had investments where we've had to make the tough call to walk away from, right? We had a different view than the lead sponsor. We generally follow the sponsor and those situations, but we are fiduciaries. And so if we think that the risk rew…”
Toomey: Co-investing in club deals reveals which PE sponsor truly leads
“In the club deals, you have the advantage point of, well, whoo, Who's actually doing the work? Who's actually just a financial investor? And who does management call when they have issues? Who does management defer to in the board meetings? And so that is inva…”
Toomey: HarbourVest first backed Insight Partners via secondaries in 2003
“We've actually sourced primary relationships first through the secondary business, because we got to know somebody and said, wow, this person said X, they delivered X plus 10%, and as a result, Insight Ventures is a perfect example. 2003, our first investment …”
Secondaries limit precise portfolio construction because buyers only get what LPs sell
“The downside of secondaries is you can't always be so precise the way you can on primaries or co-investments around picking your portfolio construction, X percent Europe, Y percent venture. The founder of the secondary business used to say, you can only buy wh…”
Secondaries shifted from distressed LP sales to GP-led liquidity solutions over 20 years
“And for 20 years, it was largely a distressed seller market. For the most part, the secondary market existed only because An owner of a limited partnership interest decided it didn't want to own that asset anymore. And what has changed in the last, say, five t…”
HarbourVest Partners has committed $30 billion to secondary transactions historically
“We've committed thirty billion dollars to secondaries in our history”
In secondaries, high-quality assets at par generate higher returns than deep discounts
“Yes, there's a benefit that comes with buying an asset at a discount, but you get that discount once. And if you buy the right asset managed by the right manager, that manager and those assets can create gains year after year after year until they get realized…”
Toomey: Private equity access expanded beyond standard 10-year fund commitments
“So for the beginning of the industry until the last 10 years, if you really wanted to invest in private equity, your choices were generally a ten-year limited partnership. You would make an investment up front, and then the manager would invest and create liqu…”
Toomey: International PE markets develop faster and differently than the US
“I think it would be a misconception to think that a market outside of the U.S. Is just X years behind the U.S. Or Y years. I mean, these are developing in their own ways. They're developing in a much faster pace than the U.S. Private equity markets have.”
Japan has the lowest developed-market private equity penetration but is becoming attractive
“A place like Japan, where the private equity as a percentage GDP is probably the lowest of any developed market in the world, as you see some of the daily headlines, that is changing, that is evolving, and so that's a quite attractive market today.”
Toomey: HarbourVest's Largest Historical Exits Came From China Venture Portfolio
“We've had some of the largest exits. That we've ever had across the history of our firm come out of our China venture portfolio because the numbers are just so unbelievable.”
Numerical investment committee ratings filter out lukewarm deals better than binary voting
“What we heard from TA was they adopted a numerical rating, one through five, and you had to have a collective number across The total voting members. And the reason why is, what they were trying to do was control for what I'd call the, I'm willing to go along …”
Private equity capitalization could eventually reach 20% to 30% of public markets
“Tell me why it can't be 20% relative to the size of the Publix, or 30%. Because I think what has happened in the last couple of decades is almost a complete development, and you're seeing this on the credit side, of a completely independent private capital mar…”
Private equity managers entering at 12x EBITDA underwrite exits at 10x
“What we see is managers who, when they're underwriting a company and going in at 12 times, they're not underwriting to exit at 15. Actually, they're underwriting to exit at 10, because the market does go through cycles, and all that does is to get to your unde…”
Pitching an investment as 'good risk-reward' is a euphemism for below-bar returns
“It is shrouded in what I described as this is a great risk-reward opportunity, because you, of course, have to evaluate the risk as well. But when I hear that, I actually believe that's a euphemism for this is a below the bar return.”
Toomey: Private equity is the only asset class driving excess pension returns
“And if anything, it's the only place over the last decade where That has contributed the excess return when they're trying to meet their eight percent or seven and a half or seven percent total asset return. They're not getting returns in a lot of places, and …”
Toomey: HarbourVest data shows positive correlation between strong ESG programs and returns
“Our data suggests that's not the case. There's actually a positive correlation between managers with great ESG programs and the returns that they generate because they think about this, and it is good for the business, it is good for The underlying company's l…”
Toomey: Careers follow a J-curve where mid-career contribution outpaces returns
“Oftentimes, there is a J-curve to it. And you get to a point in the middle of your career where you say, wait a minute, I'm contributing a lot. But I'm not actually receiving a lot in return, right? I mean, that's a common, you know, people get impatient, and …”