Best of LinkedIn: Private Equity: Fundraising CW 35/ 36

00:00:00: provided by Thomas Allgaier and Frennus, based on the most relevant LinkedIn posts about private equity.

00:00:05: Fund-raising insights in calendar weeks thirty five and thirty six.

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00:00:18: welcome to The Deep Dive.

00:00:20: So glad you're joining us, because right now I mean there are something like thirty-three thousand unsold companies just trapped in private equity portfolio.

00:00:27: Yeah it's a massive backlog.

00:00:29: Right

00:00:29: exits are completely jammed distributions to investors have well plummeted and the data actually shows that its taking full decade for investors get their original capital back.

00:00:40: So the classic PE playbook, you know buy a company wait for the market to lift them all to pull and sell it.

00:00:46: It's basically broken.

00:00:47: Oh

00:00:47: its completely broken.

00:00:48: I mean The fundamental mechanics of how firms actually get their hands on capital And You Know How they eventually return it.

00:00:54: They're being entirely rewritten while the plane is in the air Which Is exactly what we are dissecting For you today.

00:01:00: We're decoding those critical private equity insights currently circulating across linkedin so we can really understand this structural bottleneck.

00:01:08: Yeah, we're looking at the grueling new reality of fundraising.

00:01:11: The explosion of these complex liquidity mechanisms and who's actually capturing capital right

00:01:17: now?

00:01:18: Exactly!

00:01:18: And also how funds are forcing value creation in a really tight market.

00:01:23: but um... We should probably start from very beginning with the Capital Life Cycle Right?

00:01:27: The actual pitch to limited partners or LPs.

00:01:32: Because raising a fund, it's shifted from like a game of persuasion and storytelling into this ruthless test of operational credibility.

00:01:39: Right?

00:01:40: And you really see that shift in the physical architecture of the pitch decks themselves Like The Old Standard was very firm centric story.

00:01:47: Yeah You walked to a pension fund spent twenty minutes just talking about your legacy and vision.

00:01:52: Yeah!

00:01:52: You can't do anymore.

00:01:53: Chris Ollman made great point recently That effective pitches have abandoned entirely.

00:01:58: Instead What How Why paradigm, GPs the general partners.

00:02:02: they need a why how what approach.

00:02:04: Interesting!

00:02:05: Yeah one that is entirely centered on the LP's specific mandate because you wouldn't start at first date talking about yourself uninterrupted for twenty minutes right?

00:02:14: Definitely not.

00:02:15: And Alexi Chernibelsky kind of echoed this structural shift too, he argued that investment decks now need to prioritize the team's background in the top third of the presentation.

00:02:24: Yes exactly

00:02:25: Because LPs are no longer just underwriting the deal thesis.

00:02:29: they're underwriting The Team first like the thesis is completely irrelevant if the LP doesn't believe you or the unique fiduciary capable Of actually executing it

00:02:38: spot on.

00:02:39: and I mean even If your deck Is perfect targeting the wrong allocator Just kills the race instantly.

00:02:45: Ignacio P pointed this out, noting that managers often lose their room at very first question without even realizing it.

00:02:51: Oh for sure!

00:02:51: Like pitching an insurer with a deck built on a family office is just non-starter.

00:02:56: but here's what really caught my attention... The decision to re-up into your next fund is often quietly made years before you launch it.

00:03:05: Yeah because all comes down to operational hygiene.

00:03:08: Desmond Nyak had a brilliant framing on this.

00:03:11: He pointed out that, you know when a fund asks its investors for their committed money it isn't just a wire instruction right?

00:03:19: It's communication

00:03:20: exactly!

00:03:21: If the capital call doesn't reconcile cleanly with LPs end then their ops team flags the GP as a mess.

00:03:28: and over five year holding period that operational friction often matters way more than your actual IRR.

00:03:34: Wow

00:03:35: It's the same with side letters.

00:03:36: If you promise a pension fund bespoke reporting and deliver it late, allocators read that as severe failure of governance.

00:03:43: So if your an emerging manager facing this massive operational gauntlet just to prove you belong in the room?

00:03:49: The macro-math making LPs hesitant is brutal right now!

00:03:55: Ernest Sweat highlighted his staggering reality from McKenna Capital Management.

00:04:02: They're currently modeling venture fund hold periods out to eighteen years.

00:04:05: Which

00:04:06: fundamentally breaks an LP's reinvestment budget?

00:04:08: Wait,

00:04:08: okay walk me through that because if I'm in LP and my money is trapped in say a twenty nineteen vintage fund for eighteen years how does it actually stop me from investing today?

00:04:19: Because LPs, like you know pension funds or endowments they rely on the cash distributions from their older investments to fund their new commitments.

00:04:27: They have strict asset allocation limits.

00:04:30: So if the capital from twenty nineteen doesn't come back... Their bucket for private equity is technically full!

00:04:35: ...They might love your new strategy but The Capital Is Literally Trapped

00:04:38: Which perfectly explains the data Derek Shanahan shared.

00:04:42: He noted this dynamic has caused a post-twenty eleven low and first time fund formation.

00:04:47: It's a massive credibility crisis for the industry.

00:04:49: Precisely, and Joseph Ruggero emphasized a crucial philosophical point for anyone trying to launch in this environment A fund structure itself does not create credibility.

00:05:00: it only scales the trust you've already earned.

00:05:02: You don't just file formation documents and suddenly unlock better deal access.

00:05:06: No!

00:05:07: Not at all.

00:05:07: LPs demand independent evidence of your judgment before they commit a dime And John Austin Saviano added to this, noting that founders often have to fund their own working capital and their own GP commitments for years before a firm becomes viable.

00:05:22: Yeah so raising of funds right now is basically like applying for massive mortgage.

00:05:26: you don't get the money to become responsible because already are.

00:05:30: That's

00:05:30: great way put it.

00:05:31: But

00:05:32: I mean if operational burden is this heavy And you have to look institutional from day one with perfect capital call reconciliation.

00:05:39: How are these lean, emerging fundraising teams even surviving?

00:05:42: Well

00:05:42: automation is becoming their lifeline.

00:05:45: Philip Nelson-Jones recently highlighted the launch of Ankira which is an agentic AI hub specifically designed to automate the grueling workflows of fund raising.

00:05:54: Oh interesting

00:05:55: Yeah.

00:05:55: so instead a junior analyst spending hours chasing due diligence questionnaires or updating static tracker sheets The AI essentially acts as team member handling that operational drag.

00:06:06: Okay, so let's pivot to the larger structural issue we touched on earlier.

00:06:09: If LPs don't have reinvestment budgets because their capital is stuck how was the industry manufacturing liquidity?

00:06:16: Because if traditional exits like IPOs are selling to a strategic buyer Have dried up The industry has to invent new valves To release the pressure

00:06:25: right.

00:06:26: and those valves or multiplying rapidly We're moving from traditional exits too highly complex structural engineering.

00:06:32: The numbers here are just wild.

00:06:34: Lena Cabe cited Bain data showing those thirty-three thousand unsold companies sitting in portfolios, with average hold periods now stretching to seven

00:06:42: years.".

00:06:43: He actually joked that management fees were starting to resemble a subscription product.

00:06:47: he called it Netflix for capital calls.

00:06:50: It's a funny line but the reality is pretty grim.

00:06:53: Archangelosa noted this has led to massive rise in zombie funds you know funds that are past their expected life.

00:07:01: Yeah, and Cheyenne put it out that private equity distribution yields have plummeted from twenty five percent down to eleven percent of net asset value or NAV.

00:07:10: Exactly which is fueling a two hundred forty billion dollar secondary market

00:07:15: right?

00:07:15: And really quick before we dive deeper into how funds are hacking their way out of this liquidity desert.

00:07:20: speaking of subscription products you actually want make sure you hit subscribe to these feeds so don't miss our upcoming deep dives.

00:07:26: good call.

00:07:27: So looking at that exact dry spell Antoine Drann observed that historically the secondary market was just a niche tool.

00:07:35: It was built when there were only about five thousand PE backed companies, right?

00:07:39: A fraction of today.

00:07:40: Yeah

00:07:41: Today with roughly twenty nine thousand companies and flat exit routes secondaries are no longer Just a reactive tool for distressed LPs who need cash.

00:07:49: They are core market infrastructure for portfolio rebalancing.

00:07:52: And Kelvin Fu echoed this sentiment.

00:07:54: looking at the APAC region, fundraising there hit a twelve year low which is triggering an absolute golden age for secondaries and control buyouts.

00:08:02: because when you can't rely on macro-market expansion to lift your valuation operational control

00:08:09: Exactly.

00:08:10: And GPs are getting incredibly creative to manufacture this liquidity, sometimes controversially.

00:08:15: so John B Quinn highlighted the boom in continuation funds.

00:08:19: Right but I really struggle with this mechanism.

00:08:22: Like Cedric Teissier noted This is spreading heavily into private credit Pointing to Jeffries raising a one billion euro evergreen continuation fund that literally buys loans out of its own private credit book.

00:08:34: Yeah, it's bold.

00:08:35: If a GP is setting up a new fund to buy assets from its old fund aren't they basically negotiating the price with themselves?

00:08:42: I mean how was that not a massive conflict of interest?

00:08:45: It is the ultimate fiduciary tightrope!

00:08:47: The GP sits on both sides of the table.

00:08:50: They have a duty To get the highest possible price for legacy LPs cashing out But also has a duty to get lowest possible entry price For the new LPs coming in.

00:08:59: That sounds impossible.

00:09:00: Well,

00:09:01: they usually rely on third-party fairness opinions to justify the valuation.

00:09:06: But that inherent friction you're sensing is exactly why allocators are heavily scrutinizing these

00:09:11: deals."

00:09:12: And LPs aren't just taking this lying down either... David Harmeier reported that large allocators are using this difficult fundraising environment as leverage….

00:09:21: They're demanding coinvestment rights and separately managed accounts

00:09:25: Which adds another layer of complexity.

00:09:28: Robert Teja Javadi broke down how this structurally works.

00:09:31: A co-investment isn't just an LP tossing in and extra check on a deal by deal basis, it is structurally a separate vehicle.

00:09:39: Oh really?

00:09:40: Yeah!

00:09:40: It has its own NAV, its own reporting requirements ,and its own fee arrangements usually lower or fee free sitting directly alongside the main fund.

00:09:48: And GPs are even hacking their own commitments, right?

00:09:52: Nicole de Tomaso noted that while GPs typically commit one to two percent of the total fund size from their own pockets.

00:09:58: Many are now satisfying this via cashless management fee waivers.

00:10:01: they essentially forego taking a salary rather than injecting fresh cash which is obviously vital for emerging managers who don't have millions in liquid wealth.

00:10:10: but what about debt?

00:10:12: Are we seeing this structural creativity bleed into how funds actually borrow money too?

00:10:16: Oh, absolutely.

00:10:17: The blurring of lines is everywhere.

00:10:19: Steven Star highlighted the use of parallel sleeve structures.

00:10:23: Wait

00:10:23: explain that to me mechanically.

00:10:24: what exactly Is a parallel sleeve?

00:10:26: So normally A fund might go To a bank and borrow money directly Against the commitments.

00:10:30: their LPs owe them A standard capital call facility But in a Parallel sleep structure.

00:10:35: The main Fund creates a sidecar vehicle.

00:10:39: Okay...The Main Fund Commits its own uncalled Capital into That Sidecar.

00:10:43: And then the Sidecar borrows the Money.

00:10:46: It cleanly isolates the leverage and allows for highly creative deployment of unculled capital without breaching the main funds' borrowing limits.

00:10:53: That is fascinating, And we're even seeing this securitization of asset class itself!

00:10:58: Michael Ezrick in Charlotte Hogg pointed to rise of collateralized fund obligations or CFOs.

00:11:03: like Pantheon just closed a one billion dollar CFO...

00:11:07: ...and mechanics are brilliant.

00:11:09: if you want to attract specific type of capital Think about an insurance company, right?

00:11:14: Regulators won't let them hold large amounts of traditional private equity because it is too illiquid and risky.

00:11:20: Right they need safe-rated debt.

00:11:22: Exactly so.

00:11:23: a firm like Pantheon takes a massive diverse portfolio of private equity stakes And places into new vehicle.

00:11:30: Then, they slice that vehicle horizontally into tranches.

00:11:34: The top slice gets paid out first from any cash flows making it highly secure.

00:11:39: so a ratings agency gives an investment grade credit rating.

00:11:43: The bottom slice, the equity tranche takes all the risk but gets the upside.

00:11:51: You are essentially slicing illiquid PE assets into digestible debt from massive institutions... Yeah?

00:11:57: ...the washing machine of private capital.

00:11:59: Exactly!

00:12:00: Meanwhile John Mosley James Abbott and Kara Stevens noted that Australian fund finance market is shifting away from plain vanilla capital call facilities altogether.

00:12:08: They're moving to our highly complex NAV facilities where loans are based on the current value of the portfolio companies.

00:12:14: And this is increasingly driven by active sovereign wealth funds demanding bespoke terms,

00:12:19: which brings us to the data.

00:12:20: really with liquidity locked up and structures evolving This fast who was actually managing to raise fresh capital right now?

00:12:27: The concentration is staggering.

00:12:29: Yeah I mean it's a massive divide between the haves in the have nots.

00:12:33: Jeffrey fiddleman shared pitchbook data showing a huge seventy four point eight Billion dollars raised in the first half of twenty-twenty six.

00:12:41: But sixty eight point three percent of that capital went to fund sized at a billion dollars or more.

00:12:45: Wow.

00:12:46: Yeah, Nicholas McNamara mapped one hundred and twenty nine billion across just The top ten buyouts led by KKR's record breaking twenty three billion dollar North America Fund.

00:12:57: because LPs are fleeing to safety.

00:12:59: He MacArthur added that for giants like Aries Management, consistency is the ultimate differentiator.

00:13:04: LPs just want massive established brands.

00:13:12: Melissa Idmek noted that McKinsey found LP-effective allocations are actually declining, with buyout IRRs hitting a post two thousand too low of five point seven percent.

00:13:21: Yeah and for an asset class built entirely on the promise about performance... Five point seven per cent is a shock to this system.

00:13:26: Frister Havenman and Nicola Ebbmeyer showed that median PE funds are currently just matching the S&P five hundred by vintage.

00:13:33: And as we mentioned earlier it's taking a full decade to hit one XDPI meaning ten years.

00:13:38: just get your original investment back let alone turn a profit.

00:13:41: Which is why Namlu noted that KPMG sees funds actively pivoting to prioritize rapid cash distributions over paper IRR, like dividend recapitalizations where a portfolio company takes on debt just to pay a dividend of the BE.

00:13:55: firm LPs don't care about theoretical valuations anymore.

00:13:59: they demand cash.

00:14:00: They

00:14:00: absolutely do.

00:14:01: But here's where I get lost.

00:14:03: Returns are down Capital is trapped, yet alternative assets under management are booming.

00:14:09: Alexander Lipichavya JPMorgan puts it at twenty-one point.

00:14:12: six trillion dollars if institutional pensions or tapped out.

00:14:15: where's this new money coming from?

00:14:17: This perhaps the biggest paradigm shift in industry right now.

00:14:20: David Weisberg points to an untaxed tsunami of retail capital.

00:14:24: Institutional pensions are maxed out typically holding maybe eight to fifteen percent alternatives but the retail market sits at zero.

00:14:29: one per cent allocation Yeah, and Ronsters warns that private equity is already quietly entering target date retirement funds.

00:14:37: Wait really?

00:14:37: PE is moving from bespoke tailored investments for the ultra-wealthy into everyday four oh one case.

00:14:45: That feels incredibly dangerous given those ten year lockups we just talked about.

00:14:48: It's a massive structural experiment but The industry needs fresh capital And the retail market Is the largest untapped pool in world.

00:14:57: But what about the family offices?

00:14:58: I mean, they traditionally played heavily in this space.

00:15:01: They're

00:15:01: evolving too but in the opposite direction!

00:15:04: They are bypassing traditional funds entirely.

00:15:07: Hendrick Jordan notes that Family Offices is increasingly forming their own direct syndicates...

00:15:12: Going straight to The Source

00:15:13: Exactly Daniel Huber analyzed nearly sixteen hundred direct family office transactions, showing eighty-eight percent want to invest directly heavily favoring traditional private equity over early stage tech.

00:15:25: And here as James clarifies they're splitting their capital roughly evenly between direct deals and fund commitments.

00:15:32: but this isn't you know gut feel investing from a wealthy founder anymore.

00:15:37: sixty percent of these family offices are now using formal investment committees.

00:15:41: Right, they're institutionalizing.

00:15:42: We are also seeing geographic wealth shifts Driving this right.

00:15:46: Edward McKenzie, Peverton Whiteley highlighted a massive boom in India where ultra high net worth individuals increased sixty three percent and are heavily allocating to private markets To preserve generational wealth.

00:15:57: but even with the retail wave and family office wealth you have to look at The macro math of supply-and-demand.

00:16:03: all

00:16:04: this blew my mind.

00:16:05: Rafael Pinot did the math on this.

00:16:07: there's roughly two point four trillion dollars In PE dry powder unspent capital waiting to be deployed.

00:16:14: But over the next decade, there's an estimated ten trillion dollars in boomer-owned businesses about to change hands as that generation retires.

00:16:21: The mismatch is staggering.

00:16:23: even if private equity absorbs twenty five percent of that ten trillion three out four Boomer Businesses coming to market won't find a PE buyer.

00:16:31: They'll have to look to strategic search funds or literally just close their doors

00:16:35: Which means for the funds?

00:16:37: That did manage to raise capital.

00:16:39: deployment is incredibly high stakes With entry multiples, tight meaning businesses are expensive to buy and exit markets slow.

00:16:47: GPs cannot rely on financial engineering anymore

00:16:50: Exactly the days of generic playbooks or over.

00:16:53: They have to force value creation through highly specific niche operational strategies.

00:16:58: Like Ali Zahm and Devin Matthews pointed out that PE firms are aggressively cutting through AI theater, they aren't impressed by a startup's total addressable market slide.

00:17:07: There implementing highly specific agentic AI workflows with hard three month ROI targets directly into their B-to-B portfolio companies

00:17:15: And human capital.

00:17:16: the actual operators is becoming massive focal point.

00:17:20: James O'Dowd warns about the fragile assumptions and professional services deals.

00:17:25: PE models always assume partner growth, but reality is senior attrition typically spikes nine to ten percent post-merger because culture changes.

00:17:33: That's

00:17:33: a huge hit!

00:17:34: Yeah...the

00:17:35: talent pool isn't infinite

00:17:37: And Jack Seyer noted there is a severe shortage of proven PEC sweet talent, which is forcing funds to rely on step up executives and seasoned transformation leaders who actually understand the situational chaos.

00:17:50: Of a PE hold period

00:17:52: right in.

00:17:52: Rajith Shaji adds that hiring A great CFO Is no longer just about accurate reporting.

00:17:57: It's about the strategic judgment To know Which growth initiatives consume cash faster than they create it.

00:18:02: And because the standard playbook is broken, some funds are getting brilliantly unorthodox.

00:18:07: Shikar Chakani broke down the model for FTAI aviation and it's just a masterpiece of structural value creation.

00:18:13: Oh... The jet engine flywheel!

00:18:15: Walk us through how they actually do this… Because its genius!

00:18:17: Right so.. They use Wall Street warehouse financing about five point five billion dollars worth to buy commercial airplanes.

00:18:23: but don't care about leasing aircrafts.

00:18:25: that's low margin commodity business.

00:18:27: Ok what's the play?

00:18:29: The real market is in engine maintenance, which they capture.

00:18:32: And here's the kicker... When an engine reaches the end of its useful life for aviation… They don't scrap it!

00:18:38: …They convert those surplus jet engines into massive power generation units specifically for AI datacenters.

00:18:45: It's an incredible pivot.

00:18:47: They've turned an aging aviation asset into a critical infrastructure play for the AI boom, securing A-rated securitizations in the process.

00:18:55: It just proves that deep operational specialization is vital right

00:18:59: now.

00:18:59: Totally.

00:19:00: Philip DeVouser mapped a similar level of specialization with Arctos—a firm that manages a twenty billion dollar sports portfolio across thirty five teams and five major leagues.

00:19:10: They aren't just buying teams, they're institutionalizing minority stakes in professional sports as a legitimate asset class.

00:19:17: And we are seeing this deep evidence-based specialization and health care too!

00:19:21: Mareem Sain tracked two hundred eighty four women's health signals and noted that reimbursement specifically navigating CMS & FDA pathways is the true product roadmap.

00:19:31: Yes the clinical data

00:19:33: exactly.

00:19:33: menopause treatments for example are finally being priced on hard clinical evidence and trial data not just massive theoretical slides about the population size of women.

00:19:42: this

00:19:42: extreme specialization is clearly a reaction to risk.

00:19:46: when the macro environment gets tough generalists suffer, we see that play out in emerging sectors too.

00:19:51: Itzel Mankata reminds us that some sectors face intense headwinds, noting that impact.

00:19:56: first funds have struggled significantly more with securing RE-UPS than their traditional peers.

00:20:00: That's tough!

00:20:02: Yet on the flip side, Felix Ottagie points out that top quartile African PE funds are matching or beating U.S.

00:20:08: midmarket returns — they're leveraging lower entry multiples to manufacture forward returns despite LP hesitation in investing in the region

00:20:15: Which, you know raises an important question as we synthesize everything.

00:20:18: We've unpacked today where You seen that the structural engine of private equity is under immense pressure.

00:20:24: Exits are stalled distributions or historically low and median PE returns Are currently tracking near the S&P.

00:20:31: five hundred taking a decade to return capital

00:20:34: right?

00:20:35: Yet we are on the precipice of introducing a tsunami of retail capital into this space through four one K's and target date retirement funds.

00:20:42: Yeah, institutional LPs or accustomed to The J curve they understand long lock up periods.

00:20:48: but here is How will everyday retail investors react to the illiquidity premium when they inevitably experience a seven-to ten year cash flow negative cycle in their retirement accounts?

00:21:00: That is a scary thought.

00:21:02: Will that inevitable retail capital flight fundamentally break the private equity model, or will it force industry finally build transparent liquid infrastructure at currently lax?

00:21:12: If you enjoyed this episode new episodes drop every two weeks.

00:21:15: Also check out our other editions on PE value creation PE Exit strategies, venture capital M&A and strategy consulting.

00:21:23: Thank you so much for joining us on this deep dive.

00:21:25: Don't forget to subscribe.

00:21:26: we'll see next time.