Best of LinkedIn: Private Equity Insights CW 50 - 01

00:00:00: Welcome to the deep dive.

00:00:01: Today, we're cutting straight to the core strategic shifts happening in private equity.

00:00:05: And this deep dive is based on the most relevant insights we've seen shared across LinkedIn in the final weeks of the year, CW-Fifty through O-one.

00:00:15: Just a quick note, this content is provided by Thomas Allgaier and Frenis, who specialize in B to B market research for private equity teams focused on driving portfolio performance and value creation.

00:00:27: And this edition is brought to you by our partner Informa.

00:00:29: Don't miss out on their upcoming conferences Super Return Saudi Arabia and Super Return Secondaries Europe.

00:00:35: You'll find the links for those in the description.

00:00:37: You know, it's a fascinating time.

00:00:39: We're seeing this huge transition in the market chatter.

00:00:41: How so?

00:00:41: Well,

00:00:42: for years, the focus was purely financial, right?

00:00:44: It was all about leverage and optimization.

00:00:48: Now, the overwhelming theme is the structural pivot toward disciplined operational execution.

00:00:54: And technology,

00:00:55: I imagine.

00:00:55: And technology and transparent governance.

00:00:57: So that's the mission today, to unpack what this pivot really means for you if you're in strategy, M&A, or investments.

00:01:03: Okay, let's get into it.

00:01:05: It feels like we're moving from the question of if the market will recover to how you actually execute when it does.

00:01:11: Exactly.

00:01:12: And to understand that execution mandate, you have to start with where the capital markets are heading.

00:01:16: The macro outlook for twenty twenty five and twenty twenty six is well, it's leaning toward cautious optimism.

00:01:23: Cautiously optimistic.

00:01:25: I think that's the right phrase.

00:01:26: And that optimism seems to be tied to two things.

00:01:29: The expectation of lower rates, which eases pressure and a shift to more selective competition.

00:01:35: Michael Brun highlighted that, didn't he?

00:01:37: He did.

00:01:38: He noted P.E.

00:01:39: is really positioned as a long term alpha source because it stabilizes portfolios and volatile markets.

00:01:44: So it's poised for growth.

00:01:46: as that cost of debt finally comes down.

00:01:48: And

00:01:48: we're seeing regional factors that really support this, particularly in Europe and the DACH region.

00:01:54: Right.

00:01:54: Andreas Christel pointed out a key change in deal structures over there.

00:01:58: Mid-market transactions are seeing much higher equity contributions.

00:02:01: Which

00:02:01: is a huge signal.

00:02:02: It means there's less reliance on that traditional credit financing for buyouts.

00:02:07: It forces you to focus on the fundamentals of the asset, not just the financial leverage you can apply.

00:02:13: And, you know, that structural strength is complemented.

00:02:15: by the growth of private credit.

00:02:16: Bruce Richards framed that really well.

00:02:18: He said, it's not a competitor to PE.

00:02:20: But a structural compliment.

00:02:22: Yeah, it just reinforces the whole portfolio's resilience.

00:02:25: So if we shift to the fundraising side, this environment of, let's call it higher scrutiny, is driving some intense concentration.

00:02:32: It really

00:02:33: is.

00:02:33: Louis LaHoot observed that almost half, I think it was, forty-six percent of all capital raised as of October went to just the top ten largest firms.

00:02:41: Wow, that leaves a very slim slice for everyone else.

00:02:45: And it means LPs are getting highly specialized.

00:02:47: Nicola Ebbmeyer noted that of the biggest fund closes in twenty twenty five, five of the top nine were TMT specialists.

00:02:55: Tom Abravo, for instance, raised over thirty four billion.

00:02:58: Just dominating that tech space.

00:02:59: Completely.

00:03:00: And LPs are responding to this by.

00:03:02: Well, by stress-testing everything, Tunner's Gumpir said that guidance now goes way beyond celebrating past wins.

00:03:09: They're looking for future fragility.

00:03:10: Exactly.

00:03:11: They want proof of cultural fit and economic resilience before they'll commit capital long-term.

00:03:15: Future-proofing the capital.

00:03:17: That's the theme.

00:03:18: Definitely.

00:03:19: And at the same time, we're seeing private wealth become this rapidly expanding channel.

00:03:24: Frederick S. Dungway and Mark Benedetti were talking about the expansion of platforms like Ardian Access in Canada.

00:03:30: Right, creating that curated access for private investors into global private markets.

00:03:35: It gives the liquidity to the GPs and sort of democratizes access for the institutions that cater to high net worth clients.

00:03:44: Okay, so let's pivot to that liquidity picture.

00:03:46: After a few tight years, the exit market is... Well, it's showing a clear rebound.

00:03:51: Christoph Jost mentioned this.

00:03:52: Yeah,

00:03:52: that surge is finally restoring liquidity and improving distributions, which is what everyone's been waiting for.

00:03:57: And the numbers back it up.

00:03:58: We saw buyout exits surge past six hundred and twenty one billion dollars through October twenty twenty five.

00:04:06: The log jam is breaking.

00:04:07: But there's always a but.

00:04:09: There's always a but.

00:04:11: This rebound only intensifies the pressure cooker effect from these aging portfolios.

00:04:15: Nick Alvarez pointed out that median holding periods are stretching to almost four years.

00:04:20: And what's really striking is that nearly thirty percent of assets are now held for seven years or even more.

00:04:26: Seven years.

00:04:27: That creates immense pressure to return capital.

00:04:30: So exit readiness isn't a late-stage cleanup job anymore.

00:04:33: No, it's an elevated strategic priority now.

00:04:36: Jeff Harms really emphasized this.

00:04:38: The focus has to be on early planning, robust data, and professionalizing that entire sale process.

00:04:44: And Jacqueline M. Hein was really sharp on this point.

00:04:47: She said operational discipline things like governance, clear decision rights, it all has to be embedded from day one.

00:04:52: Because

00:04:53: if it's not.

00:04:53: If it's not, buyers won't trust the numbers and your valuation suffers.

00:04:57: You can't just patch it on at the end.

00:04:59: And that need for trust is also driving structural changes.

00:05:02: I'm thinking specifically about the growth of continuation vehicles or CVs.

00:05:06: Indeed.

00:05:07: Ian Glazer reported that CVs now account for roughly twenty percent of PE exits.

00:05:11: It's a huge mechanism to defer that external price discovery.

00:05:15: Which places enormous reliance on the GP's own internal valuation process.

00:05:19: But that's where the governance tension really sparks up.

00:05:23: Alexander Heel detailed a fascinating case with Triton's use of a CV.

00:05:27: Oh, this was one where the original fund backers missed out, right?

00:05:29: Exactly.

00:05:30: They missed out on subsequent games because the asset... sold for much more than the internal valuation had predicted when the CV was finalized.

00:05:38: It raises serious questions.

00:05:40: It really does, about accountability, transparency.

00:05:42: For sure.

00:05:43: And separately, we're seeing new structures like GP stakes that are addressing the GP's growth itself.

00:05:49: Hassan Kaiser noted they're moving from a niche thing to real strategic growth capital for the firms.

00:05:55: Let's shift now to the core of value creation, the operations, because that's where this execution mandate truly lives.

00:06:02: Orlando Bravo summed it up perfectly.

00:06:04: He said the next cycle rewards platform builders.

00:06:07: People who think in systems, not just one-off projects.

00:06:09: Exactly.

00:06:10: It's that systematic mindset that's the core philosophy shift.

00:06:14: It's moving PE away from the old financial engineering playbook.

00:06:18: And we can actually quantify that change.

00:06:21: Simone Viscotto cited PWC data showing operational improvements now account for forty-seven percent of value creation.

00:06:29: Which is a massive leak from the eighteen percent we saw back in the nineteen eighties.

00:06:32: It's a whole different ball game.

00:06:34: So if operations are the alpha, the discipline has to follow.

00:06:39: Romain Bagramian had some interesting advice for GPs on sales budgets.

00:06:42: He

00:06:43: was saying probe them right.

00:06:44: Don't just accept them.

00:06:45: Exactly.

00:06:46: You warn that conservative forecasts might make management look good, but they leave money on the table for the GP and the LPs.

00:06:54: You had to push on those assumptions.

00:06:55: And you can't get that operational alpha without the right people.

00:06:58: Talent is now a core value lever, not an afterthought.

00:07:02: We're seeing key roles evolve.

00:07:03: The CFO, for instance.

00:07:05: Caroline McAuliffe noted the role is becoming a transformation leader.

00:07:08: Managing financial discipline and major digital initiatives.

00:07:11: Bilal

00:07:11: W. Hashmi confirmed that.

00:07:13: The finance fundamentals are still the foundation, but the pace and the pressure have just fundamentally changed the job.

00:07:18: Which leads to a critical warning from Melanie Boone.

00:07:21: She said deals typically struggle after the close, not before.

00:07:25: So the financials get you in the door.

00:07:27: But leadership alignment and organizational health are what predict if you can actually scale.

00:07:32: If the team isn't healthy, that growth plan is at risk from day one.

00:07:37: So getting the right leaders aligned and incentivized upfront is just non-negotiable.

00:07:42: Donovan Parrish mapped out the critical talent levers for those first twelve to eighteen months.

00:07:47: Leadership do dilly, accelerated onboarding.

00:07:50: And tying incentives explicitly to liquidity milestones.

00:07:54: Making it real.

00:07:55: You know, we saw a fantastic, really actionable example of this from David Mackey.

00:08:00: This was the remote work policy case study, right?

00:08:02: That's

00:08:02: the one.

00:08:03: It shows how operational rigor has to speak the board's language.

00:08:07: A CTO was dealing with a PE-backed board that just insisted on a five-day in-office policy.

00:08:12: Based on preference, not data, I'm guessing?

00:08:15: Pretty

00:08:15: much.

00:08:15: So instead of debating it emotionally, the CTO built a strategic business case.

00:08:19: He calculated the retention risk and the replacement costs for top talent leaving over this policy.

00:08:24: And the number was?

00:08:25: Over eight hundred and eighty thousand pounds saved by being more flexible.

00:08:29: Wow.

00:08:30: So they translated a culture debate into a clear, board-level financial decision.

00:08:35: That's the move right there.

00:08:37: It proves that operational rigor isn't just about efficiency.

00:08:40: It's about making governance decisions based on quantifiable impact.

00:08:43: Which brings us perfectly to technology.

00:08:45: The tourism phase of AI is officially over.

00:08:48: That's from Alexander Turgeon.

00:08:50: We're past the hype cycle of just playing with generic

00:08:53: tools.

00:08:53: The focus is now on disciplined execution.

00:08:55: We're talking about a genetic AI.

00:08:58: These are autonomous systems designed to sense, decide, and then act.

00:09:02: To drive measurable EBITDA expansion.

00:09:04: That implementation gap, the so-called innovation theater, that's where a lot of firms are failing right now.

00:09:09: And that value only comes when you stop trying to bolt AI onto old processes.

00:09:14: Zorian Rotenberg and Jimmy Vigilani said you have to redesign workflows around

00:09:17: it.

00:09:18: Right, and the highest ROI is in the commercial levers pricing, sales productivity, demand, gen.

00:09:23: It has to hit the margin, not just create cool internal reports.

00:09:26: And to do that, the data has to be secure and specialized.

00:09:30: Dr.

00:09:30: Sacha Hage-Mueller observed that firms are shifting away from large general models

00:09:34: toward building secure, fully isolated AI systems that really understand PE data internally.

00:09:42: Systems that can scan data warehouses and propose analytical angles without leaking sensitive data.

00:09:47: But we have to talk about the strategic risk here too.

00:09:50: Elizabeth C issued a strong warning.

00:09:53: applying the Minsky-Kindleberger framework.

00:09:55: The classic bubble cycle.

00:09:56: Yep.

00:09:57: She warns we are potentially in the euphoria stage of an AI infrastructure bubble.

00:10:02: And her reasoning is that despite the billions being invested in the AI stack, ninety-five percent of firms report.

00:10:08: Well, zero immeasurable profit impact so far.

00:10:10: Zero.

00:10:11: That disconnect between spending and return is a huge structural risk.

00:10:15: Which means governance is becoming mission critical fast.

00:10:19: Steve Budd suggested that AI governance is the new cybersecurity hygiene.

00:10:23: You have to manage the uncapped legal, commercial, and concentration risks.

00:10:27: Karsten W. really reinforced this.

00:10:29: He said that data to value must be explicitly anchored to the investment committee thesis and the VCP.

00:10:34: So every dollar spent on AI has to trace back to a specific EBITDA lever, no more science projects.

00:10:40: Right.

00:10:40: But for mid-market funds, Avanash Hedyarachi pointed out there's a unique opportunity here.

00:10:45: In the software glue, as he called it.

00:10:47: Exactly.

00:10:48: And enabling technologies for infrastructure, data models, vector databases, things that support niche applications.

00:10:55: That's where the mid-market can be nimble and execute quickly.

00:10:58: Okay, let's close out with where PE is actually putting its money sector dynamics and some new deal themes.

00:11:04: TMT and software are still central.

00:11:07: Absolutely.

00:11:07: But the valuation criteria have sharpened significantly.

00:11:11: Herbert Timson emphasized that metrics like net revenue retention, CAC payback, and strong EBITDA margins are the crucial drivers now.

00:11:18: That's a huge shift from cycles that just rewarded growth at any cost.

00:11:23: Prioritizing NRR and CAC payback proves your capital efficiency.

00:11:27: Healthcare

00:11:28: is also getting sustained interest, especially through innovation-oriented strategies in Europe, something Alberto Bertani and Teril Carrasco noted.

00:11:35: And we're seeing strong PE interest in energy and oil field services.

00:11:39: Jim Terry said the focus has shifted from high leverage to hands-on execution.

00:11:43: Which

00:11:43: is creating massive demand for seasoned fractional execs to go in and stabilize those operations.

00:11:50: Beyond the traditional sectors, though, some fascinating new frontiers are opening up.

00:11:54: Like college athletics.

00:11:56: Right.

00:11:56: Parker Graham discussed the first major PE deal there, the University of Utah's roughly five hundred million dollar valuation deal.

00:12:04: It

00:12:04: signals a massive structural change.

00:12:06: He thinks most athletic departments will have an investment partner by the end of the decade.

00:12:11: It gives boosters a real seat at the table.

00:12:13: It's a huge previously untouchable market.

00:12:16: Right.

00:12:16: And we're also seeing microstructural innovation, like in the wellness industry.

00:12:20: Sebastian Esser analyzed this.

00:12:22: The move from volatile day ticket sales to recurring subscription models, like a mindful pass for thermal baths.

00:12:29: Paired with AI-controlled energy systems to manage those huge fixed costs.

00:12:33: It's really smart.

00:12:34: And finally, institutional roll-ups are still a dominant driver.

00:12:37: Nishant Sandhi highlighted the model in AI-resistant sectors like paving.

00:12:42: You integrate profitable, mid-sized operators and exit at a much higher multiple.

00:12:46: It just hammers home the message we started with.

00:12:49: Value isn't just extracted by financial engineering anymore.

00:12:53: It's built through relentless operational discipline.

00:12:55: If you synthesize all these insights, the message is unmistakable.

00:12:59: The market is rewarding radical preparation in liquidity, in governance, in AI deployment over just waiting for better macro conditions to save you.

00:13:07: This has been a really comprehensive deep dive.

00:13:09: If you enjoy this, new episodes drop every two weeks.

00:13:12: Also, check out our other editions covering venture capital, M&A, and strategy and consulting.

00:13:18: Thank you for tuning in, and don't forget to subscribe.

00:13:20: And here's a final thought to mull over, building on this idea of governance.

00:13:28: Public markets seem to be diluting shareholder oversight moving toward managerial capitalism, while private markets are intensifying accountability, acting more like shareholder capitalism.

00:13:38: So if that inversion is true, how does that fundamental difference change the way you define and manage long-term risk when you're allocating capital between those two worlds?