The Ledger
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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: 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…”
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 …”
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: 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…”
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.”
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.”
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…”
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…”
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…”
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: 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…”
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.”
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…”
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.”
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.”
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: 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…”
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 …”
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.”
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…”
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.”
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: 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.”
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: 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…”
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…”
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 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…”
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.”
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…”
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.”