It’s a well-documented fact that individuals are increasingly investing in private markets, and this is likely to accelerate when considering the future performance of a public stock portfolio.
The fear is that individual investors will invest more heavily in SPVs run by managers with no skin in the game (not deploying any of their own money into the deal). SPVs can bundle together any type of investment opportunity, including those that may be high risk or have little oversight and governance. This can lead to investors taking on more risk than they may be aware of or comfortable with.
Investing alongside managers who have experienced multiple economic cycles and have the discipline to follow a sound long-term strategy is key to capturing returns in today’s environment. These managers that have discipline on price, ownership, and selection, enable investors to build portfolios of private market companies with strong advisory teams who understand their businesses, have a perspective on the broader market outlook, and the experience to weather volatility.
-Logan Henderson, Founder and CEO
Worth a Read
How the Tech Slump Creates VC Opportunities
A “dip” in the market may actually be a great time to invest in the next generation of tech companies. Read more.
Private Market Performance in Recessions
During an economic downturn, private equity investors can take solace in the fact that their investments have historically outperformed public equities. Read more.
A Final Thought
A reporter asked us this week about how Tiger Global’s use of consultants helped them to deploy capital rapidly, and what the implications are of the market changes.
While the strategy allowed them to allocate capital to high-growth companies (a key evaluation criteria for Gridline is preferential access to investments), initial portfolio construction is only half the job of a manager.
What happens with the portfolio after you have selected it is the other half, and that work includes key elements such as board work, recruiting teams, and working to get exits / maximize value.
The easy-money streak over the last 4 years led to poorly thought-out expansion strategies and high cash burn, and many of these companies will struggle to transition to an environment where each raised dollar needs to be considered their last.
Tiger Global’s 2021 fund has already completed 360 deals, and while there are certainly some highly capable management teams, many of these companies will require the thoughtful advice of experienced managers.
That is a significant portfolio to be actively engaged with, and only time will tell overall performance.
Let us know what you think – please don’t hesitate to reach out.
-The Team at Gridline