Key Takeaways
- • Orlando Bravo, co-founder and managing partner of Thoma Bravo, warned that retail-focused private funds could end up absorbing hard-to-sell buyout assets, saying "retail could end up saving these companies that people cannot sell."
- • Demand from retail vehicles has pushed up prices in the secondary market for buyout fund stakes and portfolio companies, which Bravo said had been lit "on fire."
- • Evergreen vehicles paid on average 4% more last year for fund stakes than traditional buyers, according to Campbell Lutyens data cited by the Financial Times.
- • Thoma Bravo, which manages over $179bn in assets and returned $20bn to investors in the past 12 months, currently has no offering for wealthy individuals.
- • Institutional limits on private market allocations, many of which are maxed out, are pushing the industry toward retail capital to fill a fundraising gap.
Summary
Orlando Bravo, billionaire co-founder and managing partner of buyout firm Thoma Bravo, has said wealthy individuals should be concerned that companies private equity firms cannot sell may end up in funds aimed at retail investors. Speaking to the Financial Times, Bravo said the growing pool of private funds targeting retail investors meant that "retail could end up saving these companies that people cannot sell." He said demand from retail funds had lit the market for second-hand stakes in buyout funds and private equity portfolio companies "on fire."
The retail vehicles are beginning to fund continuation vehicles, which buyout firms create to buy companies from themselves when they cannot sell them or want to keep exposure to future upside. "That's beginning to happen," Bravo said. The context is a private equity industry that has struggled to sell assets bought at high prices during the low-interest-rate years of the pandemic. As a result, buyout firms have less cash to return to traditional institutional backers, which in turn limits their ability to raise new funds.
An influx of capital from retail investors into evergreen funds, which have no end date and allow regular deposits and withdrawals, has partially filled that gap. Bravo said Thoma Bravo did not want to be "left out" of the "incredible flows" from wealthy individuals, although the firm, which manages over $179bn and returned $20bn in cash to investors over the past 12 months, currently has no offering for them. Institutions such as pension funds and endowments often face limits on private market allocations, and many are at those limits.
Bravo stressed the need for investors to understand what they are buying, what risks they can tolerate, and that funds must perform, adding that a fund that loses money early for retail investors would not last. The FT reported earlier this month that large evergreen vehicles had bought substantial volumes of fund stakes from institutions seeking liquidity, helping to support prices despite the sector downturn. Data from Campbell Lutyens showed evergreen vehicles paid on average 4% more last year than traditional buyers, while Evercore said the inflow of retail capital had "bolstered pricing." The FT noted that it amended the article to remove two quotations it had mistakenly attributed to Bravo.
The retail vehicles are beginning to fund continuation vehicles, which buyout firms create to buy companies from themselves when they cannot sell them or want to keep exposure to future upside. "That's beginning to happen," Bravo said. The context is a private equity industry that has struggled to sell assets bought at high prices during the low-interest-rate years of the pandemic. As a result, buyout firms have less cash to return to traditional institutional backers, which in turn limits their ability to raise new funds.
An influx of capital from retail investors into evergreen funds, which have no end date and allow regular deposits and withdrawals, has partially filled that gap. Bravo said Thoma Bravo did not want to be "left out" of the "incredible flows" from wealthy individuals, although the firm, which manages over $179bn and returned $20bn in cash to investors over the past 12 months, currently has no offering for them. Institutions such as pension funds and endowments often face limits on private market allocations, and many are at those limits.
Bravo stressed the need for investors to understand what they are buying, what risks they can tolerate, and that funds must perform, adding that a fund that loses money early for retail investors would not last. The FT reported earlier this month that large evergreen vehicles had bought substantial volumes of fund stakes from institutions seeking liquidity, helping to support prices despite the sector downturn. Data from Campbell Lutyens showed evergreen vehicles paid on average 4% more last year than traditional buyers, while Evercore said the inflow of retail capital had "bolstered pricing." The FT noted that it amended the article to remove two quotations it had mistakenly attributed to Bravo.
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