Interview, Fireside Chat
Peter Lacaillade: Why Now is the Best Time to Invest in Emerging Managers | E1096
- The wealth management sector, particularly multi-family offices, is projected to remain fragmented and underserved, with the speaker anticipating a market environment where "the tide is going out," potentially exposing underperformers even if absolute returns are lower while relative returns improve.
- Portfolio performance is expected to follow a statistical distribution where managing ten funds results in three to five exceeding expectations, three to five meeting them, and one to three underperforming, with a four-year horizon required to definitively distinguish outperformers from underperformers.
- The 2020/2021 vintage is forecast to underperform future cohorts due to high entry prices and compressed deployment timelines, while the speaker acknowledges they previously erred in predicting only 10% of SPACs would fail, later admitting the failure rate would be higher.
- The speaker expects to generate "venture-like returns in small cap EBITDA positive businesses" via a strategy of investing in 2,000 funds to select 10, aiming for "5X" returns on their seed basket compared to the 2.5X to 3.5X typically seen by franchise firms.
- Secondary market activity is viewed as a "huge market opportunity" where the speaker intends to be a buyer rather than a seller until prices become more attractive, anticipating that "second" in private equity will evolve significantly over time.
- Investment allocation strategies predict a mid-market buyer paying "10 to 14 times EBITDA" for professionalized businesses against current acquisition costs of "six to eight times," while single family offices with under $5 billion in wealth are advised to utilize multi-family offices or fund-of-funds rather than launching house funds.
- Liquidity management is expected to face challenges as "accountants" often sign off on GP-led marks, creating perverse incentives where fund-of-funds prioritize TVPI over DPI, and the speaker anticipates taking "25% to 30%" of write-downs after years of high IRRs, with further pain expected.
- Private equity penetration is projected to double in the US-UK region, while Germany remains at one-third of that level and the Nordics may see the highest penetration, though state pension plans face structural impediments like 10% caps and $100 million minimum checks.
- The speaker plans to maintain their LP role for at least the next four years, potentially up to 40, with a future strategy of scaling back front-end engagement to focus on travel and family, including living outside of Boston by 2033.
- Co-investment and fund commitments will target check sizes between "$10 to 25 million" for co-investments (up to $50 million) and "$20 to 100 million" for funds, with a maximum of "2%" exposure per single co-investment, typically resulting in an "almost never" declined acceptance rate over a 12-year period.
- Manager selection involves a rigorous churn process triggered by fund size growth, team composition changes, or partner departures, with a specific prediction that the best managers will scale out of the speaker's programs, making new allocations to "badass" managers a viable strategy for the next few years.
- Operational oversight will shift to a "10,000 feet or 30,000 feet" perspective where the speaker declines board seats and avoids attending every annual meeting, focusing instead on a "divide and conquer" approach to balance professional demands with family life.
- Endowment sector trends highlight significant groupthink, with some institutions becoming under-resourced for early-stage coverage due to the sheer scale of brands like Sequoia and Benchmark, forcing family offices without massive capital to seek partnerships to access top-tier managers.