The Compelling Case for Investors Upsizing their Allocations to Private Equity
Kevin Moss is Managing Director, Portfolio Manager at Liberty Street Advisors in the US, and a keen advocate of private assets. He is finding an increasingly eager market as more investors have been seeking to diversify their portfolios by including longer-term private asset investment strategies of all types. Kevin manages a portfolio of privately-owned, late-stage, growth companies, predominantly in the US and he offered his valuable insights as one of our experts at the April 7 Hubbis Digital Dialogue event that sought to track the trends in this segment of the investment markets and their relevance to Asian private clients. He explained that for over a decade he has been involved with creating strategies that can offer wider and more ‘user-friendly’ access to the increasing number of private companies that are staying private longer.
Hubbis: What do you do there and why is Asia important to your business?
Kevin Moss: “We manage a fund here in the US and we've also recently partnered with GAM Investment to run the same strategy. We focus primarily on late-stage venture capital. When we set out to access this asset class back in 2012, we immediately noticed a real trend of companies staying private much longer. There is a real shift of capital taking place between public markets and private markets, with the public markets shrinking, while the private markets are expanding. That means there is an enormous amount of capital being raised in the private markets.
We have from the outset been trying to democratise access to private equity , offering innovative ways that investors can access this asset class in an appealing and new way. Some of the things that we tried to do were changed the fee structure. We wanted to get rid of the performance fee, and just charge a management fee. We added a liquidity feature, which in the world of private equity with funds locking up capital for up to 10 years, sometimes longer, was important to our clients giving them the flexibility to rebalance their portfolios or provide liquidity to their clients when absolutely necessary. Finally, we wanted to provide access to as many investors as possible, so they can participate in the growth taking place in the private market. With our partnership with GAM, we launched the same strategy for non-US investors and we have our eyes firmly on the Asia private client market, where there is growing demand and where we want to build our activity.”
Hubbis: When is the right time for private investors to enter these private markets?
Kevin Moss: “There is never a ‘right’ time, but from our viewpoint, investors should always be making a consistent allocation to private assets. To time these things is extremely difficult, for example nobody could have foreseen a pandemic, nor could anyone predict the timing or arrival of geopolitical events or other crises. Nobody would have known coming into this year that the tech heavy markets would have been down 15% to 20% or you would have seen the type of rotation going on in high growth companies. An allocation to private assets can in part shield your capital from a number of these exposures and protect investors from the worst volatility.
In periods of uncertainty you see significant drawdowns in public markets caused by institutional selling, short selling, analysts producing unfavorable research on companies and many other forces that can drive prices one way or another, and are well beyond a private investor’s control. The stability of holding private assets can be much higher than the day-to-day movements you see in public securities.
Many of our investors really like that lack of correlation to public markets, and the stability that they find when they're holding these types of assets.
Having said all that, in periods of financial distress there are opportunities related to price dislocations, which if one has the capital to deploy can be beneficial. So, for example, there are some companies that we looked at last year that we really liked but we could not get our arms around their valuations. Today, six months later, the world has changed, prices have weakened, and we are deploying capital more actively into those opportunities. In short, it's a very interesting time right now and we believe that private assets will further outperform over time.”
Hubbis: Why are companies staying private longer, and what does it mean for private investors?
Kevin Moss: “Apple went public after they were five years old, and they needed to do so because they had to continue to raise capital to finance their growth. Today, companies with the same profile stay private for many more years, and can access private capital for further growth while still unlisted. So private investors have access to that growth phase that used to be in the public domain.
“Many of our typical investors are those who in the past might have faced headwinds getting access to traditional PE or venture, so they have come to us as we offer new and innovative ways of getting exposure to these asset classes, and we offer liquidity features to an asset class that has historically had none.”
Investors can enjoy much more robust growth through these investments, as some of the most dynamic value creation remains in the private markets space rather than in the public markets.”
For further reading on Liberty Street Advisors and Kevin Moss, please refer to this Hubbis article:
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