Michael Zeuner: 00:08
Hi everyone. This is Michael Zeuner, one of the managing partners at WE Family Offices. Welcome to the Wealth Enterprise Briefing. I want to welcome Matt Farrell, our deputy, CIO, to the conversation. And for those of you who are regular listeners, you know that we released towards the end of last year a conversation that Sam and I had in two parts about what’s going on in the global capital markets. Are we in a bubble? Where do we see opportunity for 26 do we expect some of these trends we’ve been experiencing in the capital markets last year to continue. Why? Why not? And I wanted to bring Matt into the conversation, as we typically do, to put a little bit of a private market lens onto that conversation. And Matt has extensive expertise in the private markets, leads all of our sourcing and due diligence efforts in the private markets. And I guess Matt, I’d like to start by just taking a step back. And there’s been some reporting in recent weeks about the concept of a quote, unquote thaw in the private markets. And I think what most people are referring to, with respect to a thaw is in distributions. It’s been a challenge, particularly in venture over the last few years, in terms of lack of distributions, lack of distribution events, which could be either strategic sales or IPOs. And there’s been a fair amount of press about how that may be ending as a result of lower interest rates, growth in GDP, right, economic health, etc. What’s your take on where we stand, Matt?
Matt Farrell: 01:42
Yeah, thanks for having me. You know, as we look back over last year, towards the end of the year, it just it felt a little bit different, very anecdotal, but a lot of distributions coming in towards the end of the year across private equity and venture capital. So it felt different than the past couple years. But as we know, data is quite lagged in the private markets, so I started share some data as of q3 last year, as we await the final numbers. But you know, as we look at this data, it’s actually fairly optimistic in terms of what happened over the course of last year. But maybe just focusing on q3 which is the most recent available right now we, with respect to private equity leverage buyout, we reached an all time quarterly high of 310 billion in distributions. So a quarterly record, essentially. Now there’s an asterisk. It was concentrated amongst large market deals. In fact, those are the largest of all time that was released, but there were five that breached the 10 billion mark in q3 so little bit of an asterisk, absolute dollar amount. It was a good quarter, but it was concentrated on larger deals. And then there’s they survey private equity firms and in terms of expected activity in q3 and that increased from 44% to 61% which is also the highest record since they’ve been tracking the GP sentiment over the past few years. So somewhat limited timeframe if we look across all private market distributions. So we touched on PE This includes VC, venture capital and private credit, the annualized distribution, so q3 and then they annualize it for q4 it’s on pace to be the second highest on record. So, you know, large numbers that should create some optimism. Again, a little bit of an asterisk here, because as you look at it as a percent of net asset value. It’s still low, because if you think about the history of the private market, industry is grown tremendously. So as a percent of that nav is still quite low, but in absolute value terms, its own pace to be the second highest on record. So just some interesting data points that thought I’d share that generate some optimism, you know, and you look across the IPOs, the number of deals listed continues to increase. There are a few that we’ve talked about this year that they popped initially one day at IPO, and they’ve come back down to essentially the offering price. So, but nonetheless, that’s still some optimism, that at least there’s some activity in the market.
Michael Zeuner: 04:21
Yeah, and you know, Matt, you and I talk about this a fair amount. It’s been difficult to be committed to a private investment program over the last few years because of the challenge of distributions, but for a long term investor with a strategic target, who has the tolerance and capacity to withstand the illiquidity and manages their commitments and bite sizes in accordance with their cash flows, right? That’s a lot of things, but for an investor who really is strategic about private market investing, staying in the course, right, making commitments through vintage years is really one of the key to success. Hopefully, some of this optimism and some of this thaw will give investors confidence who do have a strategic private investment program, will give them confidence to continue with that, as we head into this new year.
Matt Farrell: 05:17
We’re certainly subjected to recency bias, and part of that is 2120 21 kind of peak interest, low interest rate environment, post covid, right? That was during the frenzy. A lot of people are investing, right? And they were used to seeing distributions and values going up every quarter, and then the kind of froze as interest rates started to rise in 2022 and they’ve just seen the returns kind of trickle down, whether it’s due to fees or markdowns and whatnot, and so psychologically, it’s hard to invest as you’re seeing your portfolio go down in time. But on the other hand, for those call it 22 vintages, we’re seeing some pretty interesting performance so far. Is still early in the fund life, and they’re not quite seasoned or mature, but they’re kind of off to the races and seeing some interesting returns so far. So I think it’s a good case study for the future as we see evaluations be depressed, it makes sense to continue to invest, no matter how hard it is.
Michael Zeuner: 06:21
Okay, so let’s pick up on that. Matt. So here we are in January of 2026 we have our global macro thesis that the global economy is in good shape, particularly in the US. We see trends that suggest that whether it’s the impact of AI or other fundamental measures like Metro like earnings, we see room for optimism, cautious optimism, and there are always things that could derail it. Inflation, you know, exceeding expectations, geopolitical events, us, political system, what happens with the Federal Reserve? I mean, there’s always reasons to be cautious, which reinforce why we never recommend making a bet on any single outcome and being diversified. But under that sort of banner of continued economic growth, where do you see the opportunities in the private markets? We’ve talked with Sam a lot about where he sees those opportunities in the public markets. Where do you see those opportunities in the private markets? And where are you focusing your and your team’s time to source investment ideas that are consistent with that thesis as we head into 26?
Matt Farrell: 07:20
Yeah, a lot of it’s a continuation of what we found interesting last year. We are all familiar with the AI story, but we always try to invest in kind of tangential sectors of these thematic trends. Maybe an example going looking back at the electric vehicle craze back in 2020 21 instead of investing on the horse that’s going to win, meaning picking an EV producer, we chose to invest along the supply chain that generates the components that go into a battery into an electric vehicle, right? So you’re not picking a winner, but the supplier is a winner, no matter what, right? So I kind of think of it the same way with this AI theme, let’s think of the less obvious ways to play it. And I think part of that is just looking at kind of up the value chain, and that’s going to be within a lot of the commodities that are needed to produce, whether it’s chips or components with data center construction. So that can be copper, that can be other critical minerals, and a lot of that is also geopolitical relation related, that can can potentially have a tailwind. So we continue to like commodities, and just trying to be thoughtful, it’s a inherently volatile space, and so we always say, take the basket approach to commodities. So that’s not just only long only side, maybe just, you know, in terms of, like, passive exposure to commodities, but also in the private markets. So that could be a mining that could be royalties associated with various commodities. It could be midstream. So that’s the thing we’re looking at. And also related is energy, you know, just all the data suggests that we’re going to continue to see energy demand just skyrocket. We’re seeing it already in utilities, and it’s just, it’s just with all the data center productions, it’s just not sustainable. So we’re going to have to find alternative and additional forms of energy. So continue to look across the energy ecosystem, not just traditional oil and gas, but also midstream. We’re looking at power generation and just kind of the picks and shovels associated with energy, great.
Michael Zeuner: 09:27
So, so what I’m hearing as we kick off the year is similar themes, but also similar looking for spaces that might not be on everybody’s radar screen, but are consistent with the broader macroeconomic themes. Well, I think Matt, we’ll look forward to hearing from you as the year plays out as to where those opportunities are as your thesis deepens and shifts, and look forward to those conversations.
Matt Farrell: 09:53
Thank you.
Disclosure: 09:57
The Wealth Enterprise Briefing is for informational and educational purposes only, and does not consider the specific investment objectives, financial situation or particular needs of any listener. The information in the briefing is not a recommendation of any security and should not be relied upon as investment legal or tax advice.
