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Kenneth.vtt

English

{{00:00:07}}
If you look at it comparing to last
year, for instance, I think we've

{{00:00:12}}
got a market that has a bunch more
visibility into certain policies.

{{00:00:18}}
We've just gotten through the election.

{{00:00:19}}
I think that was something
else that has caused hesitancy.

{{00:00:23}}
Interest rates have stabilized, or at
least we know that they're not going up.

{{00:00:27}}
And so we have this backdrop of deals that
are getting done now because you have the

{{00:00:35}}
spread in the credit markets coming in.

{{00:00:38}}
There is an overhang of capital out
there, so GPs do need to deploy, and

{{00:00:43}}
I think the message has gotten relayed
pretty clearly that exits need to happen.

{{00:00:49}}
And when you think of those factors,
you can see why the deal flow would be

{{00:00:53}}
increasing and so we think that will
continue throughout the, rest of the year.

{{00:00:59}}
I do think that fundraising in private
equity continues to be a challenge

{{00:01:04}}
and I think That presents a really
interesting opportunity for us at

{{00:01:08}}
Hamilton Lane, especially as it relates
to direct equity and co investing.

{{00:01:19}}
I think regardless of who is going
to get elected, private equity

{{00:01:22}}
was going to continue to thrive,
regardless of the administration.

{{00:01:25}}
Do I think a Trump election helps?

{{00:01:28}}
In some cases I do.

{{00:01:30}}
I think North America
will be a focus for folks.

{{00:01:34}}
It will certainly, his policies will
help drive growth in North America.

{{00:01:39}}
So I would, assume that there is more
allocation, look, I think in terms

{{00:01:44}}
of this cycle versus others, I think
it's important to note that we haven't

{{00:01:49}}
technically been in a recession, and so
while there are other headwinds involved,

{{00:01:55}}
if you look at this one versus, GFC, I
think you've got a different dynamic.

{{00:02:01}}
You've got companies that
have continued to grow.

{{00:02:04}}
I think there are other challenges
with regards to leverage levels and

{{00:02:08}}
interest rates that we need to focus on.

{{00:02:11}}
But if you look at loan to values in
sort of the GFC versus today, I think

{{00:02:17}}
GPs have really learned their lesson
and have been quite conservative.

{{00:02:22}}
I think they were north of 70
percent in some cases during the GFC

{{00:02:26}}
or right prior and now we've been
consistently around 50 percent or so.

{{00:02:32}}
So you're not really seeing default rates,
as some folks would, think just given

{{00:02:38}}
sort of the backdrop of the, economy.

{{00:02:40}}
But, things, continue to look okay.

{{00:02:43}}
I also think when you look at the dynamics
within private equity, investors have

{{00:02:49}}
gotten comfortable with the results.

{{00:02:51}}
They're on paper now.

{{00:02:52}}
They're real.

{{00:02:54}}
And so there is really a
strong attraction there.

{{00:02:56}}
They've seen that historically, private
markets do outperform public markets.

{{00:03:01}}
I think there's a lot
of data to support that.

{{00:03:03}}
You'll see that there are different
access points now, so it's not

{{00:03:06}}
just for institutional investors.

{{00:03:08}}
I think individuals are also
getting access, and so there's

{{00:03:11}}
going to be attraction there.

{{00:03:13}}
I think fundraising will continue.

{{00:03:16}}
I think we've been, cleared through
some of the uncertainty, so if you look

{{00:03:20}}
at that sort of today versus the last
12 months, there's a lot more clarity.

{{00:03:31}}
I think it circles back to if you've
got general partners that you have

{{00:03:36}}
really good relationships with, which
we do if you think about Hamilton

{{00:03:40}}
Lane's sort of network and platform,
there are hundreds of GPs that we

{{00:03:44}}
invest with in a meaningful way.

{{00:03:46}}
And so we are getting deal
flow from them consistently.

{{00:03:50}}
Regardless of how the market plays
out, but if you think about leverage

{{00:03:54}}
coming down, interest rates being up,
there is naturally an equity gap there.

{{00:03:59}}
And large strategic co investors like
ourselves are being invited to processes

{{00:04:03}}
to help them get to the finish line.

{{00:04:05}}
I think when you think fundraising is
a difficult environment, we'll look

{{00:04:09}}
at a Hamilton Lane platform where
we do commit large dollars to funds.

{{00:04:15}}
That makes us a partner
in a, different way.

{{00:04:18}}
They want to have that connectivity, they
want to make those relationships stronger.

{{00:04:23}}
We think we sit in a really unique place,
and our deal flow in 23, compared to the

{{00:04:29}}
market, which was down 30%, we were up
almost 40 percent in terms of deal volume.

{{00:04:34}}
Middle market is a really favorable area
for co investments, and in particular

{{00:04:38}}
the we've invested around the middle
market for a long period of time.

{{00:04:42}}
We have strong relationships here.

{{00:04:44}}
We have a significant amount of data that
really supports that the risk adjusted

{{00:04:48}}
returns are strongest in this area.

{{00:04:50}}
And there are a bunch of reasons
why, but we were able to look at

{{00:04:53}}
things over a long period of time.

{{00:04:55}}
I think the last 20 years, we've
seen that during hold periods,

{{00:04:58}}
the middle market outperformed
significantly on revenue and EBITDA.

{{00:05:03}}
In a pretty big way.

{{00:05:04}}
And I think there's a
number of reasons for that.

{{00:05:06}}
I think there's a big difference
in value creation plans.

{{00:05:09}}
I think we see a number of different
ways to grow these businesses.

{{00:05:13}}
And a lot of them aren't
really operationally efficient.

{{00:05:16}}
Some of them have been owned by
family families before, or just owned

{{00:05:21}}
by private equity once or twice.

{{00:05:22}}
Where on the other end of the
spectrum, you have businesses that

{{00:05:25}}
are larger, they've been owned
by private equity several times.

{{00:05:29}}
How much more can you do?

{{00:05:31}}
We also find that middle market
companies are quite nimble.

{{00:05:34}}
Over the last few years, we've seen
that there have been significant

{{00:05:37}}
headwinds in the market, and these
companies have actually navigated it

{{00:05:41}}
really well, to the point that we are
not only seeing performance, but we're

{{00:05:45}}
seeing some pretty significant exits.

{{00:05:48}}
If we go down and start to look at,
valuations and leverage levels in

{{00:05:52}}
the mid market versus the large end.

{{00:05:54}}
much lower, sometimes
turn and a half lower.

{{00:05:57}}
And so when you look at that, the mid
market's less reliant on the leverage,

{{00:06:01}}
less reliant on interest rates, because
they can grow in different ways.

{{00:06:05}}
And if you look at the large end, because
growth is slower, they really need the

{{00:06:10}}
extra leverage to get them to the returns
that, that they've historically achieved.

{{00:06:15}}
And then, like I mentioned a little
bit is the exit opportunities are

{{00:06:19}}
just enormous versus the large end.

{{00:06:21}}
I think 80 percent of.

{{00:06:23}}
Large cap deals end up
going through the IPO route.

{{00:06:27}}
And obviously that's been
anemic for a long time.

{{00:06:30}}
When you look at the mid market,
you've got a number of ways to grow

{{00:06:33}}
financial sponsors that are larger.

{{00:06:36}}
You've got strategics and then
continuation vehicles in the secondary

{{00:06:39}}
market have really led the way.

{{00:06:42}}
Pretty, they've been
pretty impactful for us.

{{00:06:49}}
There's going to be the assessed risk
that we see, which I think is positive

{{00:06:54}}
right now, just given some of the.

{{00:06:56}}
the clarity and visibility I
mentioned earlier, we will always

{{00:06:59}}
have a backdrop or the unknown.

{{00:07:02}}
I think that we've seen over the last
five years that, that, that happens.

{{00:07:07}}
So we have to be prudent and continue
to invest in companies that can hold

{{00:07:11}}
up in any sort of economic environment.

{{00:07:13}}
With that said, I think it's important
for us to, look at sort of the tailwinds.

{{00:07:18}}
Where do we really see some of the growth?

{{00:07:20}}
I think it will be, I think we'll
see opportunities across industries.

{{00:07:24}}
I think infrastructure services is
probably a big area for us to look at.

{{00:07:30}}
Industrials, as you see the decoupling
and deglobalization play out, I think is

{{00:07:37}}
going to be a big opportunity as well.

{{00:07:38}}
And I think healthcare will
continue to be there as well.

{{00:07:42}}
There's multiple segments of that market.

{{00:07:44}}
There's fragmentation.

{{00:07:45}}
There's a real need for private
capital to go into healthcare.

{{00:07:49}}
So I think those are some
of the interesting spots.

If you look at it comparing to last
year, for instance, I think we've

got a market that has a bunch more
visibility into certain policies.

I think that was something
else that has caused hesitancy.

Interest rates have stabilized, or at
least we know that they're not going up.

And so we have this backdrop of deals that
are getting done now because you have the

There is an overhang of capital out
there, so GPs do need to deploy, and

I think the message has gotten relayed
pretty clearly that exits need to happen.

And when you think of those factors,
you can see why the deal flow would be

increasing and so we think that will
continue throughout the, rest of the year.

I do think that fundraising in private
equity continues to be a challenge

and I think That presents a really
interesting opportunity for us at

Hamilton Lane, especially as it relates
to direct equity and co investing.

I think regardless of who is going
to get elected, private equity

was going to continue to thrive,
regardless of the administration.

I think North America
will be a focus for folks.

It will certainly, his policies will
help drive growth in North America.

So I would, assume that there is more
allocation, look, I think in terms

of this cycle versus others, I think
it's important to note that we haven't

technically been in a recession, and so
while there are other headwinds involved,

if you look at this one versus, GFC, I
think you've got a different dynamic.

You've got companies that
have continued to grow.

I think there are other challenges
with regards to leverage levels and

But if you look at loan to values in
sort of the GFC versus today, I think

GPs have really learned their lesson
and have been quite conservative.

I think they were north of 70
percent in some cases during the GFC

or right prior and now we've been
consistently around 50 percent or so.

So you're not really seeing default rates,
as some folks would, think just given

I also think when you look at the dynamics
within private equity, investors have

And so there is really a
strong attraction there.

They've seen that historically, private
markets do outperform public markets.

I think there's a lot
of data to support that.

You'll see that there are different
access points now, so it's not

I think individuals are also
getting access, and so there's

I think we've been, cleared through
some of the uncertainty, so if you look

at that sort of today versus the last
12 months, there's a lot more clarity.

I think it circles back to if you've
got general partners that you have

really good relationships with, which
we do if you think about Hamilton

Lane's sort of network and platform,
there are hundreds of GPs that we

And so we are getting deal
flow from them consistently.

Regardless of how the market plays
out, but if you think about leverage

coming down, interest rates being up,
there is naturally an equity gap there.

And large strategic co investors like
ourselves are being invited to processes

I think when you think fundraising is
a difficult environment, we'll look

at a Hamilton Lane platform where
we do commit large dollars to funds.

That makes us a partner
in a, different way.

They want to have that connectivity, they
want to make those relationships stronger.

We think we sit in a really unique place,
and our deal flow in 23, compared to the

market, which was down 30%, we were up
almost 40 percent in terms of deal volume.

Middle market is a really favorable area
for co investments, and in particular

the we've invested around the middle
market for a long period of time.

We have a significant amount of data that
really supports that the risk adjusted

And there are a bunch of reasons
why, but we were able to look at

I think the last 20 years, we've
seen that during hold periods,

the middle market outperformed
significantly on revenue and EBITDA.

And I think there's a
number of reasons for that.

I think there's a big difference
in value creation plans.

I think we see a number of different
ways to grow these businesses.

And a lot of them aren't
really operationally efficient.

Some of them have been owned by
family families before, or just owned

Where on the other end of the
spectrum, you have businesses that

are larger, they've been owned
by private equity several times.

We also find that middle market
companies are quite nimble.

Over the last few years, we've seen
that there have been significant

headwinds in the market, and these
companies have actually navigated it

really well, to the point that we are
not only seeing performance, but we're

If we go down and start to look at,
valuations and leverage levels in

much lower, sometimes
turn and a half lower.

And so when you look at that, the mid
market's less reliant on the leverage,

less reliant on interest rates, because
they can grow in different ways.

And if you look at the large end, because
growth is slower, they really need the

extra leverage to get them to the returns
that, that they've historically achieved.

And then, like I mentioned a little
bit is the exit opportunities are

Large cap deals end up
going through the IPO route.

And obviously that's been
anemic for a long time.

When you look at the mid market,
you've got a number of ways to grow

Kenneth Binnick, Co-Head of Direct Equity Investments at Hamilton Lane, shares his expert insights from SuperReturn North America. Explore the current state of private markets, the potential impact of the new administration, and the evolving dynamics of private equity dealmaking as we approach 2025. Learn how today’s landscape is creating favorable conditions for middle-market co-investments and what lies ahead for investors and dealmakers.
