In a recent fireside chat hosted by Giovanni Amodeo for the ION Influencers series, Alan Gauld, Senior Investment Director, Patria Investments shared his insights on the evolving landscape of the mid-market secondary opportunities for General Partners (GPs) and Fund of Funds (FoFs). The discussion covered a range of topics, from Gauld’s background and the trajectory of the company’s private equity team to the future of private equity markets and the role of secondary markets in providing liquidity.

The Role of Secondary Markets: Gauld highlighted the growth of the secondary market since the global financial crisis, with the value traded jumping from $15-20 billion per year to $120 billion last year. Despite this growth, the secondary market remains relatively small compared to the overall private equity market, which has an AUM of around $5 trillion. Gauld anticipates further innovation and growth in secondary markets, providing investors with more opportunities for liquidity.

GP-led Secondary Transactions: The discussion also touched on the increasing trend of GP-led secondary transactions, which Gauld views as a proactive strategy for GPs to continue supporting their “golden geese” assets while offering liquidity options to LPs. He emphasized the importance of managing these processes appropriately to avoid reputational damage and loss of trust.

The Future of Private Equity Markets: Looking ahead, Gauld predicts continued growth in GP-led transactions and innovation in the secondary market. He expects the industry to consolidate at the top end, with larger firms becoming more powerful and offering a wider range of products. However, there will still be a place for strong lower mid-market managers who can create real alpha in their segments.

Value Creation and Due Diligence: Gauld stressed the importance of value creation and differentiation for private equity firms in the coming years. He believes that technology has made granular analysis easier, but understanding the culture, strategy, and team quality of private equity firms remains crucial. The exit market’s future is uncertain, but Gauld is optimistic that deal flow will return, driven by the need for distributions and the large amount of dry powder that needs to be deployed.

Personal Aspirations and Advice: Gauld shared his excitement to raise significant funds and create value for investors. He also shared a piece of advice that resonated with him: one can learn from everyone, both from their successes and their failures.

This fireside chat offered valuable insights into the current state and future prospects of the private equity market, emphasizing the importance of secondary markets, value creation, and the strategic decisions facing mid-market firms.

Key timestamps:

00:09.37 Introduction
00:36.95 Alan Gauld’s Background
01:54.31 Transition to Managing a Listed Investment Trust
03:04.42 Challenges of Managing a Listed Company
03:51.38 Investor Goals and Strategy
05:18.35 Shift in Market Products and Cash Availability
06:16.13 Growth and Innovation in the Secondary Market
07:10.95 GP Led Stakes and Transactions
09:59.85 Future Market Outlook
11:20.87 Consolidation and Differentiation in the Industry
12:57.20 Challenges for Mid-Sized Firms
14:37.38 Succession Issues and LP Diligence
15:54.25 Increase in the Number of GPs
17:49.43 Value Creation and Due Diligence
19:24.56 Impact of Exit Market on LPs
20:00.92 The Effect of Distributions on the Fundraising Market
20:33.77 Pressure to Deploy Dry Powder
21:08.68 Importance of Exit Strategy and Deal Flow
21:31.23 Challenges Faced by the Industry
22:37.07 Macroeconomic Factors Affecting Private Equity
23:00.73 Impact of Interest Rates on Transactions
23:52.95 Challenges in Private Equity Transactions
24:35.23 Future of Private Equity Returns
25:08.05 Focus on Value Creation in Private Equity
25:29.16 Continuation Funds for Value Creation
27:01.47 Personal Aspirations and Role Evolution