Private Equity Exits and the Evolving Role of Family Offices with Matt Wolf of RSM 2-15-25
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What is the current exit environment in private equity?
This is Scott Becker with the Becker Private Equity and Business Podcast. I'm thrilled today to be joined by Matt Wolf. Matt is one of our most listened to guests. He's a senior sort of leader in valuation at RSM. RSM is the leader in sort of mid-market private equity. We're going to talk today about the exit environment and sort of what's going on there. There's been this delay in exits. We've seen some of the big, big fund companies report KKR and Carlyle Group, all cleaning up on fee income. But the reason their stocks took another chin after their earnings releases was the concept that they're actually not making a lot of money in that 20%, the profit on the exit. So the 2 and 20, the 2 is going great. They're also making money in a lot of other ways.
But the 20%, they're struggling because not enough exits. Matt, talk about exits, the family office environment, the general environment. Tell us what you're seeing out there.
Yeah, thanks, Scott. You know, the exit environment, we expect it to be very busy this year, we and others, right? You know, portfolio companies have been held for too long by most funds. We've seen, you know, NAV loans, continuation vehicles, other things like that sort of on the periphery. But by and large, there's a significant amount of assets that we expect to be traded hands this year because the sponsors need to focus on new investments. And yeah, they're not... That 20% cut of the carry on exit, they've been holding out, hoping for multiples to return, for financing to get better, closer to what it was in 2021. It's just not going to happen. So between the positions being long in the tooth and looming debt refinancings on a lot of these companies, we expect to see a high amount of turnover of these assets. But we expect that many of it will be at potentially lower multiples, right?
How are family offices influencing private equity exits?
A lot of these companies that were built or bought in the era of zero interest financing and now the kind of economics of those deals aren't really working. They're just not going to command the multiple that the sponsors need them to. But they have to get transacted again. They just have to be turned over. They got to return money to LPs, even if it's not at the IRR they want. They got to focus on new funds. And, you know, one of the things that we're watching that I'm specifically watching is. the role of family offices in those exits um you know it might be surprising to people for people to hear but there's estimates that family offices worldwide most of which are in the u.s have six trillion dollars of assets uh more than hedge funds and they have long investment horizons
So I'm curious to see and kind of expecting to see that we'll see a large uptick in family offices buying these portfolio companies from private equity groups that are looking to exit. They're going to have to exit a lower multiple. And if you're a family office that has a 7, 10 or even indefinite hold period, you know, this might look like a good deal on some of these actions, right? Yeah.
What challenges are private equity firms facing?
Yeah, so there's so many pieces that you're talking about that are so fascinating. One is you see on private equity funds, so much of the success depends on the vintage. If you were in a vintage fund, we're in a period of escalating multiples. Everybody did well. You almost had to just keep things even and use it well just through the arbitrage of multiples or stacking some stuff on and growing bigger EBITDA and having the multiple arbitrage. When multiple arbitrage goes away and there is none of that now, then you're in a spot where you're really between a rock and a hard place because margins have gotten tighter in some of these businesses. So not necessarily outperforming and there's no multiple arbitrage. So I hear from plenty of LPs that, of course, we'll see this cycle is not doing nearly as well as the S&P during this cycle.
And then second, not really looking for the IRRs of what they wanted to get, but will be happy to get out of this with their capital intact and a little bit more money, some return, so that they're at least in the hunt to re-up and figure out where they're allocating their next set of funds.
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Chapters
5 chapters
1
What is the current exit environment in private equity?
0:00–2:05
2
How are family offices influencing private equity exits?
2:05–3:20
3
What challenges are private equity firms facing?
3:20–4:59
4
How do hold periods affect investment strategies?
4:59–6:18
5
What trends are emerging in private equity valuations?
6:18–11:09
Speakers
1 identifiedMore from Becker Private Equity & Business Podcast
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