Episode 179 - Marks on the Markets: Private Equity & Secondaries Outlook with Andrew Behrman & Chris Kim
Sep 3, 2024
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In this discussion, Andrew Behrman, a Partner at Sovereign's Capital focusing on faith-driven investments, and Chris Kim, Founder of Argosy Strategic Partners specializing in secondary market private equity, delve into the intricacies of private equity and secondary markets. They explore the benefits of diversification amid rising interest rates and the growing importance of liquidity solutions. The duo also emphasizes faith-driven stewardship and the need for community engagement in navigating uncertain economic times.
The substantial growth of the private equity market highlights its potential for diversification, attracting both institutional and retail investors alike.
The importance of the secondary market lies in providing liquidity for investors amid declining distributions, while emphasizing a long-term, faith-driven investment approach.
Deep dives
Growth of the Private Equity Market
The podcast discusses the significant growth potential of the private equity market, which currently represents around $14 to $15 trillion of the $120 trillion in global asset management. By 2028, estimates suggest that private markets could grow to between $20 to $25 trillion. Factors driving this growth include the lower correlation of private equity to public markets, offering potential diversification for investors. This trend highlights an increasing interest from both institutional and retail investors in accessing private market strategies.
Understanding Secondary Markets
Secondary markets play a crucial role in private equity by enabling investors to sell their limited partnership interests in funds. The podcast outlines that these markets have grown significantly, now representing 1% of the overall private markets and on track to exceed $140 billion in transaction volume this year. The secondary market is primarily comprised of buyout and venture capital investments, with the former typically trading at better valuations due to established cash flow. This growth is fueled by the increased need for liquidity among limited partners, particularly as traditional private equity distributions decline.
Challenges and Opportunities in Venture Capital
The podcast highlights the challenges faced by venture capital investments, particularly in light of their high valuations during the 2020 to 2021 period. Investors are concerned about the struggle that many startup companies face to become cash flow positive, making it difficult to accurately value these investments. The drop in distribution rates and low cash inflows in venture capital positions have created an environment where secondary buyers are viewing these assets with skepticism. Nevertheless, opportunities also exist for those investing in credit funds and established buyout assets, which continue to demonstrate stability and growth.
Faith-Driven Investing and Long-Term Mindset
The podcast emphasizes the importance of maintaining a long-term perspective and faith-driven approach amid market volatility. Both hosts and guests reflect on the value of patience in investment decisions and the significance of aligning investment strategies with personal and faith values. With changing market dynamics and macroeconomic factors, leveraging a framework of faithful stewardship becomes essential in navigating the complexities of investment management. Ultimately, the conversation underscores the need for investors to remain grounded and focused on their mission, rather than getting caught up in market noise.
In this episode of the Faith Driven Investor Podcast, Richard Cunningham, Andrew Behrman, and Chris Kim discuss the private equity world and the secondary market. They explain that private markets offer unique benefits such as diversification and active involvement but also come with trade-offs like limited access and illiquidity. The conversation focuses on the secondary market, which allows investors to offload their positions in private funds. They discuss the recent growth of the secondary market and its importance in providing liquidity in a time of lower distributions.
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