2019 Private Markets Due Diligence Survey – Findings Report

Insights into the key factors influencing one of the most critical junctures between investors and fund managers—Released May 2019 by eVestment


Due diligence remains the foundation for investors looking to build quality portfolio and generate above market returns. It is arguably the point at which investors have greatest influence on the outcome of their commitments and an area we have observed an increased focus on in recent years. Consequently, due diligence is one of the most important junctures between investors and fund managers and a crucial part in forming and building successful, long-term relationships for both parties. This is why eVestment Private Markets conducts the only annual
industry survey specifically focused on the key elements of the due diligence process from the investor, consultant and fund manager
perspectives. This year, we’re pleased to present you with the fourth edition of our report in association with Nasdaq, the parent company of eVestment. With a renewed set of questions and topics explored for 2019, the survey continues to uncover the emerging factors impacting
fundraising, performance analytics and manager selection.

Key Findings

Returns expected to decline, but respondents see some specific opportunities. Respondents’ greatest concerns for the future
of private markets were identified as having a generally negative impact on returns, with more than 40% of investors expecting a decline in
performance for both existing and prospective investments.

When investigated by sub-asset class, the weight of opinion was against private equity, venture capital and real estate. Real assets and infrastructure were strategies that investors were most bullish on. Competition for deals is the number one concern for both investors and fund managers. Investor and manager respondents both voiced their highest level of concern about competition for deals, with investors indicating a stronger level of concern. This topic was only rated the fourth highest concern in our 2018 survey, but climbed to top this year’s survey — potentially as investors and managers begin to realize the effect of record fundraising levels flooding the market with available capital and an ever-growing list of fund managers chasing the same assets.

Close to two-thirds of investors and fund managers expect a market correction within the next two years. The prospect of a market correction was a top three concern for both investors and fund managers, and the majority of both groups reported it would be within the next two years. While investors indicated this would lead to an increased focus on monitoring their portfolio, fund managers saw the biggest impact on the timing of exits. Fund managers underestimate the importance of metrics and analytics during due diligence. In terms of specific elements of the due diligence process, it was clear that fund managers underestimate the importance investors place on key pieces of analysis such as loss ratios,

PME and the impact of fees. A new element uncovered this year was the growing importance of calculating horizon-based returns — perhaps
in an effort to better assess private market performance alongside other asset classes as allocations grow in size and the strategy evolves
from alternative to mainstream.

See full report:  https://www.evestment.com/wp-content/uploads/2019/05/eVestment-Private-Markets-Due-Diligence-Survey-2019.pdf

Updates From the Other Hedge Fund Conference This Past Week. Ideas From Sohn

Although lacking the glitz and pizzazz that SALT has, the Sohn Conference is an outstanding hedge fund event and takes second place to no one. It brings in some of the best trade ideas the industry’s elite has to offer, while supporting a great cause by raising funds to support research to eradicate pediatric cancer and other childhood diseases.

Hedgie bigs there included Larry Robbins, Bihua Chen, Dan Sundheim, Jeff Gundlach, Scott Goodwin and a host of others.

Known for his insights into the turbulence of daily life, Gundlach told the Lincoln Center gathering, “Respect everyone. Know life is unfair. Take risk. Step up in the tough times. Face down bullies. Lift the downtrodden,” “And never, ever give up.”

Other hedge fund managers that spoke included David Einhorn who said he was wagering on AerCap while betting against GATX. Larry Robbins, quite literally an expert in trading health care stocks said he thought hospital systems were good investments as a whole. Cohen protegee, Gabe Plotkin said the environment for stocks was “pretty good”.

Have always felt the Sohn Conference attracted the best with the best ideas, no different this year.

The 3 Keys to Becoming Irresistible What the people I adore all have in common….Guest Article by John Gorman

There’s a routine question asked in job interviews, first dates, table games and so on: What is the most important thing you look for in other people?

There’s variations on this format (i.e. “What’s the most attractive quality you look for in a potential partner?” Or, “What’s your greatest strength?” And so on) but, in general, the answer remains the same: The character trait you hold above all. When pressed, I’ve often stumbled and resorted to something trite and probably not true: honesty, humor, confidence, charisma, etc. Those are fine answers but they’re not in my estimation the correct ones.

And so one day I sat down on my pleather couch, brewed some holy basil tea, queued up some Anderson Paak on the Spotify and really, truly tried to whittle down the essence of what makes truly admirable, special people exactly that. I analyzed people I looked up to, people I was attracted to, and people I just couldn’t dream to be without. And I found that the answer could never be just one thing, and that many of the things I think I admire are manifestations of other, deeper things I admire more. Here are the three components that, when taken together, create a spellbinding supernova of a person — one who can command a room and control their destiny, one who can be both altruistic and intelligent. And so I give them to you and make a case for each.


This trait is the root of all growth, learning and kindness. It’s the belief that you are not yet so great that your mind cannot be opened, and it’s the presence of mind to remember that we are all interconnected equals, and that injustice against one is an injustice against all. It is, flatly, an absence of entitlement. People who exhibit humility let their work speak for itself, they remain stoic in the face of their own suffering, and they remind themselves — and others — that life is fragile and therefore valuable. Humility quells ignorance and cultivates grace. I want this in the people I hold dear.


Without curiosity, you cannot be enthralling or even engaging, nor — most rudimentary of all — successful. It is frankly impossible. Curiosity drives an insatiable quest for knowledge, culture, novelty, experience, beauty, art and connection. It is the bedrock upon which you can build a life filled with stories, memories, accomplishments and relationships. People who exhibit curiosity can become masters, or polymaths, or auteurs — but they must first always have an open mind. They first seek to listen, to absorb, to immerse, to traverse. The world is too large and their time on it too short to ever remain fully satisfied in their pursuit of whatever new ideas pass in front of them. I want people around me to remain curious, routinely examining the world through fresh eyes, and using their eyes to find fresh corners of the world.


This trait is the miracle drug of humanity (and elephants, and dolphins). It is the simplest, sweetest attribute one can possess, and the most worthwhile one worth cultivating for social success. Empathy brings people closer, and makes others feel understood and less alone inside. And if there is one thing we’re all looking to become a little less of, it’s alone. When I see truly empathetic people, I see people who genuinely care, but also people who remind us that sometimes it’s okay to be still with someone else and not invade their space or encroach their boundaries. This unique ability to understand the world through others’ eyes and cut to the heart of what others are feeling and experiencing. Empathy breeds compassion, connection and love. It is an important precursor for honesty.

You may have noticed the three are closely related. This is no mere accident. In fact, when you stack humility, curiosity and empathy, you can easily see how they amplify each other.

Humility is the soul. Curiosity is the mind. Empathy is the heart.

Humility is how you value yourself. Curiosity is how you value your others. Empathy is how you value the bonds between yourself and others.

Humility is the soil of knowledge. Curiosity is the water that helps it grow. Empathy is the sunlight that shows us which way to bend.

And if you take any two without the third, you’re missing a crucial component: Humble, curious, apathetic people are slothful. Humble, disaffected, empathetic people are sensitive but not very interesting. Brash, curious, empathetic people are exhausting. But when you bring them all together, you create a benevolent triad.

These three traits are the key to becoming warm, smart and memorable. They’re irrepressible and irresistible. They’re my favorite qualities in others: the most attractive, the strongest, the most admirable. And whether I’m hiring them, dating them or learning from them, these are the qualities I look for above all others.

John Gorman, Amateur life coach & insightful writer. Read More by JOHN

Merida Capital Launches Third Fund Targeting Cannabis Space

Mitch Baruchowitz’s Merida continues to build positions in the cannabis space. The firm just launched its third fund that will look to invest $200m across the entire cannabis ecosystem. The PE firm is only two years old, but has already invested in several dozens players in the space.
Merida also announced the opening of an office in Toronto, Canada to look at deals in a country where cannabis is entirely legal.

Citrin Cooperman Annual Report on Independent Sponsors Reveals a Growing Industry Becoming Ever More Sophisticated


When we launched the first Citrin Cooperman Independent Sponsor Report last year, our goal was to shed a light on the largely unchartered landscape of the independent sponsor world, the “Wild West” of private equity, as one of last year’s esteemed contributors Bruce Lipian aptly described it. Last year’s Report was the first of its kind, reaching a large number of independent sponsors (245 to be exact) on a
wide variety of topics – firm evolution, deal flow, capital raising, economics and liquidity events, among others.

This year, we wanted to capitalize on the success of last year’s Report and to dig deeper. We continue to explore the themes covered last year, but we have also expanded our analysis of economic terms, in response to feedback from many of you. In a sector where one broken deal can be financially
devastating and one successful liquidity event can set you up for life, the stakes have never been higher. And so this year, based upon responses from over 200 independent sponsors, we have identified typical” terms and calculations while also finding considerable variation in economic structures. By sharing these data points, both the typical and atypical, it is our hope that independent sponsors and their capital providers will have a greater understanding as to what the market will bear.

When we started our independent sponsor survey effort last year, there was no playbook for the sector. This year, we hope to create the beginnings of one so that all independent sponsors – novice and experienced alike – may benefit from the findings shared. We are indebted to our survey respondents and our esteemed group of external contributors, both independent sponsors and capital providers, for sharing their insights with us and for making this year’s Report possible. We hope that you enjoy the Report, and we look forward to discussing our findings with you.

Sylvie Gadant, Partner, Citrin Cooperman



This is Citrin Cooperman’s second Independent Sponsor Report. This year’s Report incorporates results from an online survey and interviews with leading independent sponsors and capital providers. Some statistics used throughout the Report may reflect rounding.


This year, 208 professionals in the independent sponsor space shared their views on industry outlook and operational issues such as deal flow and mechanics, capital sources, deal economics, relationships with portfolio companies and liquidity events. The survey was conducted in April and May 2018, and interviews with leading independent sponsors and capital providers were conducted in July 2018. One hundred and seventy five respondents identified themselves as independent sponsors. Like last year, the majority of these independent sponsors are at firms that have been in existence more than five
years. Most firms (60 percent) have two or three principals, and 27 percent have only one principal. The majority have one non-professional staff member. All major regions of the United States are represented by our respondent population.

Not surprisingly, many of the younger firms (80 percent of them) represented firms (80 percent of them) represented in our study (defined as those in existence less than five years) have not had a liquidity event. Among older firms (those in existence more than five years), 25 percent of them have had four or more liquidity events. Of those firms that have had liquidity events, 12 percent have returned an average realized equity multiple of greater than 5x.

The independent sponsor space has experienced a significant evolution over the past two decades. In
the early days of the model (back when independent sponsors were still known as “fundless”
sponsors), former private equity and investment banking professionals dominated the space. But now,
as our research shows, professionals from other backgrounds – company management/ operations
and consulting, among others – are seeing it as a viable career path. They, like many, are embracing
the risk inherent in the model, realizing it allows them greater control over their investments and holds
the lure of outsize returns.

“The model makes good economic sense both from a GP and LP perspective: you have the benefits of
not dealing with the dollar cost averaging of multiple investments and fund management issues
associated with committed capital,” explained David Acharya, Partner, AGI Partners LLC. “In addition, the model has strong limited partner alignment on issues such as fees, carried interest and discretion to review each investment opportunity.” Like the independent sponsor sector itself, the firms represented by our respondents have also meaningfully evolved over the years.
Once our respondents gained a track record, they found that capital flows more freely. Several
noted that they are now seen as a legitimate alternative to funded groups, whereas early on, that was not the case. Many respondents described how their network of capital sources expanded and changed over the years. For some firms, capital partners have become more institutional. Other firms partner with family offices. Repeat funding relationships have become an option, especially for those with decent track records.

Deal sourcing strategies have also changed for our respondents through the years. When many independent sponsors were just starting out, broker referrals and auctions were the dominant sources of deal flow. Once independent sponsors developed a track record with a few deals under their belt, inbounds and proprietary deal sourcing became more popular.

In addition, many of our respondents have become more selective in which deals they pursue. Some avoid auctions entirely. Others have changed their focus, for example, moving up-market to focus on control buyouts or companies with higher EBITDA. However, all independent sponsors face a uniquely tough situation – the need to balance myriad demands – sourcing, portfolio management, capital partner relationships and general operations to name a few – with limited resources. In response, many of our respondents have added personnel, both principals and junior staff, which enable them to  respond quicker to inbound opportunities, source more deals, allocate resources more efficiently and manage investments more effectively. Streamlining processes is also essential to scaling an independent sponsor firm. Recognizing this, our respondents have employed various strategies: implementing CRM systems to manage investor and contact relationships, creating investor portals, establishing protocols
for investigating deal leads, managing due diligence and streamlining portfolio management. “Replication of returns comes from replication of processes,” advised John Fruehwirth.



As the independent sponsor model has grown in popularity over the past two decades, it now has more credibility and traction with capital sources. “In the 90’s, independent sponsor deals were typically referred to us,” said Evan Gallinson, Managing Director, Merit Capital. “But we soon realized we were getting good deals from this source, then called fundless sponsors, and they were adding great value
post-close.” Merit Capital launched a specific outreach effort and created its first fundless sponsor conference in 2005. “Now, we are the ones actively seeking independent sponsors and proactively trying to build relationships,” he added. “These relationships have also developed into more of a two-way street, and we sometimes are referring out deals to independent sponsors when the deal isn’t right for us.” Gretchen Perkins of Huron Capital agreed. “We are in active outreach mode to independent sponsors. We want to maintain visibility with this crowd and be there for them when they find an opportunity and need capital to complete an acquisition.” Capital sources available to independent sponsors have also expanded significantly. “Even in the past five years we have seen a radical change,” said John Fruehwirth, Managing Partner, Rotunda Capital. “Endowments, families, and institutions recognize there is good talent in the independent sponsor field, and they are trying to harness it
through one-off or repeat relationships………FULL REPORT HERE 


Pitch Book Named Best Research Provider

SEATTLE, March 20, 2019 /PRNewswire/ — PitchBook, the premier data provider for the private and public equity markets, announced today it has been named the Best Research Provider by Private Equity Wire, as part of its 2019 Private Equity Wire Awards. Private Equity Wire is a leading publication serving institutional investors, wealth managers, investment managers and advisers across all asset classes. The Private Equity Wire Awards are based on a ‘peer review system’ whereby Private Equity Wire’s readers elect a ‘best in class’ in a series of categories via an online survey. Categories include, best private equity managers, investors, consultants, advisers and service providers. Audiences recognized the value of the PitchBook platform to fundraise faster, build custom benchmarks, source investments targets, conduct smarter due diligence, plot exits and ultimately drive value for portfolio companies.
“At PitchBook, our mission is to deliver a better way for our clients to do their job,” said John Gabbert, CEO and founder of PitchBook. “Winning the Private Equity Wire award for Best Research Provider based on client and peer voting is a tremendous honor and validates our dedication to providing the highest quality data and unparalleled customer service.”
Since launching in 2007, PitchBook has become the go-to resource for data and research on the private financial markets, including private equity, venture capital, and mergers and acquisitions. The PitchBook Platform, mobile app, API and analyst research empowers users to make informed investment and business decisions by surfacing hard-to-find financial data on companies, investors, funds, LPs and service providers. PitchBook is one of the fastest growing financial information companies in the world, having seen a 65% increase in customer base in 2018 alone and nearly doubling global headcount since 2016. For PE firms in particular, the PitchBook Platform has informed some of the most influential deals in the space with its mission-critical intelligence and real-time private- and public-market data that allow PE firms attract and retain the best investors, identify and vet investments and generate market-beating returns.

Candidate Assessment Traps>> Killer Product or Sales Skills?

The age old question always asked when hiring a capital raiser. Is the candidate’s track record a function of deep investor relationships and their sales ability, or is it the market demand for the fund they are selling? We have studied that very question since conducting our first hedge fund search in 1990. Here, we will try to provide clarity around the best practices used in assessing fund raising talent. This is part of an ongoing series that will cover the full range of functions in the industry. Our purpose is to inform our audience about assessment methods currently employed that are the best predictors of candidate success in the investment space.
Since 1990, our firm has worked on several mandates every year to recruit a capital raising professional for one of our investment management clients. Every search is unique, each client different in culture and size. That said, when hiring a marketer, they all need an individual who has deep relationships and a proven track record of raising capital. Our firm’s task is to determine which candidate’s fund raising prowess provides our client with the best probability of securing allocations for the fund. To that end, we have used a process that employees our network of managers and allocators that we have cultivated over a period of 30 plus years, to answer that very question.
 Our assessment process begins with an overview of the funds the candidate has marketed over the course of their career. We rate the funds on a scale that measures how easy or difficult it was to raise capital for that fund at the time the candidate was marketing it. It is scored using our own quantitative and qualitative process that assigns a value to this first component of our assessment, which is to what degree did the fund effect the candidates capital raising track record.
We then move to the second component of our assessment process and map the allocator universe for the various funds the candidate has sold, and compare that universe to the number of relationships the candidate has in that universe. That provides us with the second value, which is to what degree does the candidate have relationships he/she can monetize.
Lastly we interview the candidate to determine cultural fit. We use a work history behavioral analysis that gauges how well this individual will fit in to our client’s work culture.
Over the decades this process has evolved as each engagement we take on provides us another data point to test the accuracy of our methods, and observe if our assessment model proves itself in a real world fund environment. That is, we track the performance of the people we recruit and continue to update our process on what we learn. As with any endeavor to predict human performance, it needs to be a continual agile process of improvement.