After delving deep into attractive current opportunities for income in private credit over the last two strategy notes, “Are private credit markets too good to be true—Or just factually true?” and “Private credit: Opportunities to seize and risks to avoid,” let’s turn our attention back to growth.
Middle market private equity secondaries: A better growth risk/reward profile
As the title of this strategy note suggests, we continue to search for an alternative growth risk/reward profile than middle market private equity secondaries (preferably in a tax efficient manner)—and we keep coming up empty.
Both middle market PE primary and co-investments have more potential to the upside if things go well (and we love both opportunities in today’s market environment), but with more risk per incremental unit of upside (it would seem the efficient frontier1 holds!). But if you are looking for growth with as little risk as possible to an unforeseen recession or market calamity, middle market private equity secondaries continue to shine as a sustained beacon of market opportunity.
Unless you are for some unknown reason still enamored with tomfoolery-driven investment theses focused on growth internationally—where there has been, and continues to be, a paucity of monetizable growth opportunities (ah, remember the golden days of the BRICs?)—then you likely have already rationally settled on the U.S. as the place to invest for growth.
What are your options for growth?
The straightforward options for growth in the United States are: 1) market cap weighted U.S. listed equities, 2) venture capital, 3) large/mega cap private equity and 4) middle market private equity. Here is how each of these four options compare.
