In the second episode of Titanbay's Fireside Series, Przemek Obloj – Managing Partner at Blue Horizon and former Managing Director and Head of European Private Equity at PSP Investments, a C$170 billion Canadian pension investment manager – joined us to talk portfolio construction, growth opportunities and the future of private markets.
Below are a few of Przemek’s key takeaways:
1. Good data is key, and is increasingly available
The “information advantage” of the largest investors is less pronounced than in public markets, but it exists. Try to ensure that you are seeing as much of the market as possible (and early!) and enrich the pre-packaged performance data with questioning the credentials and sector expertise.
2. Private advantage: long-term thinking
Private companies are not under the pressure of quarterly reporting and should be able to place long-term bets. Times of “quick fixes” are increasingly rare- owners need to make their businesses better and stronger for the longer term.
3. Illiquidity is overstated
The “illiquidity premium” is increasingly a thing of the past. In today’s markets, it is perfectly possible to dispose of a $1bn secondary portfolio in four weeks. Going forward, technology will make it even easier, further eroding the boundary between public and private investing.
4. Big rocks first, small rocks later
In private markets, you cannot cost-effectively replicate the beta (no trackers, at least for now). So you are always building a portfolio with your alpha and beta intertwined. Large cap buyouts are the closest to beta there is, and therefore I would start there for the cornerstone of a private markets allocation strategy.
5. Fine-tuning with specialists
There are some focused large-cap buyout shops, but most of them are generalist by necessity. Therefore, a lot of the fine-tuning of the portfolio to the manager’s beliefs and objectives will be probably done with exposures to specialist managers — bearing in mind that many of them are smaller and younger firms (but that is not necessarily a bad thing!).
6. Filling the gap… no more
Growth investing has emerged to fill the gap left by companies going public later and at much higher valuations. By now, it is a stand-alone asset class with dedicated managers and often attractive characteristics from a portfolio construction perspective, as growth managers often invest on the back of strong secular trends.
7. SPACs are a mixed blessing
SPACs are definitely a viable exit route for many PE/Growth/VC backed companies. But it is important to remember the incentives of their sponsors, and consequently, the highly opportunistic nature of their approaches. They are the quintessential ‘hot money’ — so buyer (and seller!) beware.
8. Demand real expertise and value add
In the “olden days” just being able to structure the deal was good enough. By now, the PE managers have to demonstrate real value-add, and that requires real insight into the industry and issues faced by the companies. The interesting consequence is that being a true specialist (MD, scientist etc) now opens a road to a career in PE — it did not do so 20 years ago.
9. Distressed requires patience
Investing in distressed funds requires strong nerves in a prolonged bull market. That being said, given we’re in the longest economic expansion in living memory, distressed has an important role to play for investors as a counter-cyclical hedge. We had a reminder of it in March/April, and to some extent right now in the market, but we are still waiting for the major bear market.
ABOUT THE SPEAKER
Przemek Obloj is Managing Partner at Blue Horizon, a thematic investment firm focused on human and planetary health. He is responsible for Blue Horizon’s growth capital and private equity investing.
He brings more than 15 years of investing experience from leading global organizations including CVC Capital Partners and EQT Partners. Prior to Blue Horizon, Przemek was the Managing Director and Head of European Private Equity at PSP Investments, a C$ 170 billion Canadian pension manager. He started his career at McKinsey & Company and holds a MSc in Finance from Warsaw School of Economics and an MBA from INSEAD in Fontainebleau and Singapore.
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