In a recent fireside chat, Cyril Demaria-Bengochea, Head of Private Markets Strategy at Julius Baer, shared valuable insights into the evolving landscape of private markets, addressing both challenges and opportunities for investors. Below are the key topics discussed:

1. The Importance of Education in Private Markets

Cyril emphasized the need for ongoing education regarding private equity and private credit. He noted that many investors, particularly those from older generations, lack formal training in these areas, leading to a gap in understanding. By writing books and engaging in discussions, he aims to demystify private markets, facilitating more informed conversations among clients and investors.

2. Client Preferences: Large vs. Small Funds

The chat highlighted how client comfort levels vary with investment in larger, well-known funds like Blackstone and KKR versus smaller, niche funds. Cyril pointed out that while larger funds often dominate headlines, smaller funds can offer resilience and specialization, particularly in economic downturns. The discussion focused on the importance of a diversified portfolio that includes both large and smaller fund managers to mitigate risks and capture various opportunities.

3. The Mid-Market Opportunity

Cyril discussed the significance of the mid-market in private equity and private credit, predicting its continued prominence as a source of investment opportunities. He explained that larger funds are increasingly looking at mid-market deals for aggregation, known as “buy and build.” This strategy allows larger players to transform businesses by acquiring smaller companies, providing a pathway for succession and growth.

4. Exit Strategies in a Changing Market

The conversation turned to exit strategies amidst a challenging market, particularly with initial public offerings (IPOs) being less frequent. Cyril noted that trade sales and secondary buyouts are the primary exit routes, accounting for a significant portion of transactions. The discussion addressed the implications of high interest rates on borrowing and how this affects both buyers and sellers in the private market landscape.

5. Innovation and Risk Management

Cyril highlighted the rapid innovation occurring within private markets, particularly concerning new financial instruments and strategies like fund financing and continuation funds. These innovations are designed to provide liquidity to fund investors while addressing the complexities of risk management. He emphasized the need for investors to adapt and understand these new instruments to make informed decisions.

6. Consolidation Trends in the Industry

The chat concluded with a discussion on the consolidation trends in the private equity sector. Cyril analyzed the motivations behind mergers and acquisitions, noting that while egos may play a role, strategic partnerships often make more sense than outright consolidation. He emphasized the importance of maintaining diverse investment strategies to cater to different client needs.

7. Investment Allocation Recommendations

When asked about investment allocation, Cyril suggested a market-level approach: allocating around 55-60% to private equity, 10-15% to private debt, and the remainder to private real assets, with a significant emphasis on real estate. This allocation reflects the market’s current structure and the relative weights of different asset classes.

Key timestamps:

00:09 Introduction to the Fireside Chats
01:40 Evolution of Private Markets
03:10 Cycles in Private Market Strategies
05:17 Current Market Conditions and Valuations
06:51 Research and Client Interaction
09:14 Transparency in the Private Market Industry
13:35 Client Expectations and Information Needs
15:58 Education on Private Market Asset Classes
18:04 Client Comfort with Fund Sizes
19:09 Investment Dynamics in Private Markets
20:37 Building a Tailored Investment Program
23:02 Challenges for Mid-Market Fund Managers
24:55 Navigating Exit Market Uncertainties
28:47 Risk Management in Fund Financing
30:50 The Complexity of Fund Manager Consolidation
34:16 Investment Allocation Strategies