About this episode
Chief Market Strategist Troy A. Gayeski, CFA, shares the key takeaways from his new strategy note, Going for growth: Middle market private equity secondaries.
Troy joins Content Strategist Harrison Beck to examine how middle market PE secondaries offer the potential for growth at a reasonable price with unsurpassed risk-adjusted return potential. He addresses the potential advantages of the middle market, what makes secondaries attractive, and how middle market private equity, combined with secondaries, may help serve investor needs for growth.
“Middle market private equity may be the definition of growth at a reasonable price. And when we look at investor portfolios, they have very little exposure to this key area for growth going forward.” –Troy A. Gayeski
Transcript excerpt
Troy Gayeski: Middle market private equity is the definition of growth at a reasonable price. When we look at investor portfolios, they have very little, if any, exposure to this key area for growth going forward. Within middle market PE, as you’re looking at the different choices, secondaries arguably offer the best risk-reward because you’re certainly going to get some right up on the discount to NAV and you have much less risk of loss in the event that something goes sideways in the broader economy or in capital markets.
Harrison Beck: Welcome Troy.
Troy Gayeski: What’s up, Harrison? How are you?
Harrison Beck: I’m doing good. How are you?
Troy Gayeski: Doing great, doing great. Focused on continuing to make sure our performance is heading in the right direction and trying to articulate all the wonderful things we’re doing at FS for clients to the best of my ability.
Harrison Beck: Well, your new strategy note is titled “Going for Growth, Middle Market Private Equity Secondaries,” and it goes in-depth on why you believe middle market private equity secondaries offer the potential for growth at a reasonable price with unsurpassed risk-adjusted return potential. This piece does a great job of breaking this down, examining the potential advantages of the middle market, how the secondaries market works and how private equity secondaries combined with middle market private equity may help serve investor needs for growth.
Now, we’re going to follow that same structure in our conversation today. So let’s start with the middle market. First, there’s some variation in what firms refer to as the middle market. What do you mean when you talk about middle market private equity?
Troy Gayeski: Yeah, it’s a great question and some of our competitors play a little loosey goosey with definitions because they want to emphasize the middle market because of all the wonderful attributes there. But there’s varying definitions. One standard one is 10…a million to a billion of revenue. In that case, there’s 200,000 companies.
Another definition, slightly smaller, five to $500 million of revenue; there, there’s 140,000 companies. So it’s a very broad environment…makes up about a-third of private sector GDP, which in case everyone forgot, we just revised up our GDP and again, our nominal GDP to an even higher number than we thought it was—29 trillion.
