Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Perennial pivot to early-stage companies accelerates
Perennial Value Management, long known mainly for its “value” stock-picking prowess, is this week launching a new private growth ventures fund. The Perennial Private Ventures Fund will open to wholesale investors on 26 April 2022 and has already sounded out strong interest with cornerstone capital identified. The fund is targeting $200 million-plus from family offices, super funds, and high-net-worth investors.
The Perennial Private investment team comprises Ryan Sohn, Brendan Lyons, Karen Chan, James McQueen and Perennial’s head of smaller companies and microcaps, Andrew Smith.
The fund is a unique proposition that captures a gap in the domestic market at the private growth stage. The stages in the life of a fast-growing business usually go through when it receives funding, from venture capitalists or “angel” investors, through to when the early investors exit via an IPO. While these two funding stages dominate headlines, there is a transitional funding stage that is just as important that tends to go by unnoticed: “growth” capital. This is where the Perennial Private investment team will focus, on providing established, fast-growing Australian businesses with the capital and expertise during the intermediate phase before a potential liquidity event.
The team has a gained an enviable track record in private company investing through its existing funds in this rapidly growing sector of the market. These include, the Private to Public Opportunity Funds (PPP) and the Perennial Value Microcap Opportunities Trust. Some of the success stories include Koala, Animoca Brands, Spriggy, Indebted, Emesent, Xpansiv, Sonder and Songtradr.
The fund will target the high returns of early-stage venture capital, but with a faster route to liquidity and lower overall portfolio risk. The first Perennial Private to Public Opportunities Fund (PPP1) launched in August 2019, and has returned +169% (net of all fees) since inception.
Portfolio manager Ryan Sohn said, “The Perennial Private investment team is seeing a rapidly increasing pipeline of high-quality growth-stage private companies. These companies are staying private for longer, and this drives the need for patient institutional capital, which this new fund will help supply. Perennial is uniquely positioned to partner with the very best founders and companies on their complete journey.”
There has been a huge spike in demand for private-equity-styled funds lately. Private equity has been one of the most popular, and profitable, of the alternative asset classes in recent years. The collision of massive amounts of capital and more companies choosing to avoid the pressures faced by becoming listed has made an allocation within portfolios more important than ever.
The opportunities and potential returns in the private market are also a lot higher that the public market. When compared to the public listed market, there are only 2,500 companies in Australia, whereas in the private equity market there’s about 145,000 private companies. Over the long term, private equity has historically outperformed listed markets, with a 20-year compound annual growth rate (CAGR) return of 10 per cent a year versus the S&P 500 Index’s total return of 7.6 per cent a year.
Traditionally, private equity investments have been out of the reach of all but the most wealthy investors, requiring significant upfront investments, but also locking-up capital for as long as ten years. This is unpalatable for most investors.
The Perennial fund clearly offers some benefits of this approach in the form of accessing high-quality companies early in their growth cycles, and in many cases helping to guide them through this growth process, and providing them with capital to help drive the next stage of their private growth strategy.
