Episode 100: Innovations in Private Equity

Neuberger Berman on Co-investments and Mid-life Deals

It is our 100th episode of the [i3] Podcast and we are celebrating this with an in-depth discussion on innovation in private equity, especially mid-life transactions, with David Morse, Managing Director and Global Co-Head of Private Equity Co-Investments at Neuberger Berman. Enjoy the show!

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Overview of Podcast with David Morse of Neuberger Berman

01:00 Starting in mid-market lending, but liking what the guys on the other side of the table did more
03:30 Deal flow in Private Equity has been low and portfolio companies are for more than 6 years, an eternity in PE
06:00 Prior to 2022, you had the “rocket fuel of private equity”, cheap debt and distributions exceeded capital calls. But you get to the third quarter of 2022 and all of those sources of liquidity have dried up
09:00 What we saw was that seller expectation was still quite high, but buyer expectations had come down dramatically, because the cost of capital had gone up
12:30 Today, PE transactions are not leveraged buyouts anymore, it is a very equity heavy transaction
16:30 Mid life transactions are co-investments into the private equity space. They focus on companies that have been owned for a few years, but are still performing well and needs capital to continue its value creation plan
19:00 When you are a GP, there are really only three sources of capital: private debt, secondaries (continuation funds) and co-investments (including mid life deals)
22:00 The problem in PE is not the returns, it is the distribution. And that is why there is an opportunity for private debt, secondaries and co-investments
25:00 Should we re-lever assets?
31:00 Distribution levels are at their lowest since 2010 and so LPs say: ‘I cannot commit to your next fund until I see some cash back’. If you ask me who is going to blink first, seller expectation vs buyer expectation, then I’m going to say seller expectation first.
33:00 Investment banks told us that their backlog of signed M&A agreements was higher in Q1 of 2024 compared to Q1 2021, the record exit year of all time.
35:30 The deal flow that has collapsed is one private equity firm selling to another private equity firm
37:30 In terms of the deal being done, we’ve seen a shift towards up market
38:30 We subscribe to not just interest rates ‘higher for longer’, but ‘higher forever’


[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe. The [i3] podcast is available on iTunesGoogle PodcastSpotifyAmazon Music, or your favourite podcast platform.