Hg's Nic Humphries - investing at an inflection point in history
Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Re-underwriting and Deciding Long-Term Holds
Michael asks how Hg knows which to hold; Nic explains rolling three-to-five-year re-underwrites and when to exit for fund-level returns.
Welcome back to the Alt Goes Mainstream podcast.
Today’s episode is about mining for investment success in enterprise software by going “an inch wide and a mile deep” with someone who is one of the industry’s most prolific private equity technology investors.
We sat down with Nic Humphries in Hg’s London office. Nic is the Senior Partner and Executive Chairman of Hg and Head of the firm’s Saturn fund.
Hg, one of the top 10 largest PE firms globally based on the PEI300 ranking, has built an impressive investment engine focused on mission-critical enterprise software. The firm has built a portfolio that is a “transatlantic ecosystem of software and services businesses” — representing over $180B in collective enterprise value across its 55 portfolio companies.
Nic is responsible for Hg’s strategy, management, and governance. On the investing side, Nic focuses on larger software investments that provide daily-use mission critical applications for accountants, tax / compliance professionals, and designers / engineers / scientists. He has brought his electrical engineering background to bear to go a “mile deep” into a category where Hg has become an unquestioned market leader.
Nic balances being both a detail-oriented specialist with a vision for both the enterprise software industry and Hg as a firm. We had a fascinating discussion about enterprise software investing, how to create European software giants, applying AI to make companies more efficient, and much more.
We covered:
- The origin story of Hg.
- How Hg grew into one of the industry’s leading software focused private equity firms.
- How an engineering mindset has helped Nic become a leading investor.
- Why Hg focuses on mission-critical enterprise software and why it’s a compelling investment thesis.
- Why enterprise software investing can be considered a low volatility investment strategy and how Hg has delivered consistent returns to investors.
- How to effectively manage exits and DPI.
- Why Europe, why now?
- How AI could impact technology and services businesses.
Thanks Nic for coming on the show to share your wisdom and expertise about enterprise software and private markets.
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Show Notes
00:00 Introduction to our Sponsor, Juniper Square
01:40 Introducing Nic Humphries
01:56 Hg's Investment Strategy
04:03 Nic's Background and Career Journey
04:46 Engineering Mindset in Investing
05:14 Long-Term Business Thinking
05:58 Hg's Focus on Accounting Software
06:45 Growth Drivers in SMB Market
09:05 Impact of AI on Enterprise Software
09:34 Platform Shifts in Technology
11:10 Adapting to AI in Business
12:15 Mission Critical Software
14:02 Challenges of AI Integration
14:58 Embedding Products and Services
17:13 Organic Growth vs. Acquisitions
20:51 Geographical Expansion Strategies
21:59 European vs. North American Markets
23:30 Management Teams and Expansion
24:32 Jurisdictional Challenges in Europe
25:05 Hg's Investment Philosophy
25:50 Mission Critical Software in Europe
36:22 Hg's Consistent Investment Returns
38:00 Conclusion and Final Thoughts
40:13 Understanding Recurring Revenues
40:59 The Importance of Discipline in Investing
41:48 Learning from Past Experiences
43:30 Maintaining Excitement and Focus
45:26 The Role of Realization Committees
46:44 Continuous Improvement Culture
47:42 The Importance of Cash Returns
48:51 Exit Strategies and Realization Committees
50:32 Re-underwriting Investments
52:40 AI's Impact on Software Development
54:17 The Rule of 40 and AI
54:38 Investing in AI: Startups vs. Established Businesses
55:59 Hg's Growth Strategy
58:56 Specialization in B2B Back Office Software
01:01:35 Fund Structure and Management
01:03:27 Expanding into the Wealth Channel
01:03:48 Hg Capital Trust and Fusion Fund
01:05:27 Communicating with a Broader Audience
01:06:39 The Importance of Brand in Wealth Management
01:07:32 Connecting Private Markets to Everyday Life
01:09:36 The Prevalence of Private Companies
01:11:09 Aligning Interests with Investors
01:12:19 Investment Decisions and Long-term Growth
01:14:21 Future Growth Opportunities for Hg
01:16:38 The Role of AI in Future Investments
Editing and post-production work for this episode was provided by The Podcast Consultant.
Disclaimer
The views and opinions expressed in this episode are those of the speaker and do not necessarily reflect the official policy or position of any affiliated organization.
Any references to past performance, including IRR or MOIC figures, are presented on a gross basis and do not reflect the deduction of fees, expenses, or carried interest. These figures are illustrative and not necessarily indicative of future results.
Statements regarding industry rankings, success rates, or performance consistency are based on internal analysis and may not be indepe...
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