E116: How Everyday Investors can Access Private Equity w/Pantheon ($70B AUM)

Large cap funds are just getting larger. And what it means is that you still have that very small number of companies where the amount of dollars chasing those companies just keeps on getting bigger.
And so what you have there is GPs who struggle to differentiate versus each other and have to differentiate in pricing, which means that they typically use more leverage. And you can argue that some of the quality or the selectivity ratio is also diminishing.
Because if you need to deploy capital as a large cap fund, you have a three or four year investment period. You can't just sit around and wait for the years to come your way.
So the combination of higher pricing, pressure to deploy, higher leverage, we think is not necessarily the best place to be in for private wealth investors. What are the characteristics across the 1.2 to 1.4% of buyout managers that are on your buy list? What we try to look for is a clear focus in terms of four key dimensions.
Victor, I've been excited to chat since our friend Mikhail Bankovic from Unicorn Strategic Capital introduced us. Welcome to 10x Capital Podcast.
Thank you, David. What is Pantheon? So Pantheon is a global integrated fund of funds-funds platform.
We were set up in 1982 and over a little bit more of 40 years, we have effectively created multiple franchises within the firm across private equity, infrastructure, private debt, and real estate. And in every one of those franchises, we have primary, secondary, and co-investment capabilities.
Today, we manage around a limit, very close to $70 billion of capital. And all of that around $7 billion is evergreen capital.
Tell me about your evergreen fund franchise. Yeah, so Pentium was set up in 1982.
And five years later, in 1987, we launched a listed trust on the London Stock Exchange called PIP. And that vehicle today has been active for 37 years.
It has a little bit shy of $3 billion of AUM and really acts as one of the first evergreen vehicles to be launched in the industry. And then back in 2014, on the back of that successful UK experience, we launched a 1940 Act fund in the US.
Today, that fund is one of the largest in industries. It's focused on secondaries and co-investments in the small cap and mid cap segments of the industry and has been active for around 10 years.
And then after that, so from 2023 onwards, we started working on an international version of the U.S. semi-liquid fund.
What is the purpose of the Evergreen franchise and tell me why it exists? Benton has always been at the forefront of innovation. And our aim really was to bring that institutional experience, where we work with some of the largest allocators globally, to give them access to small cap and mid cap.
And our ambition was to provide that access to the wealth community or maybe some of the smaller institutions so that they can also benefit from what we think are compelling returns. And then also, I think in the Nevergreen format, another feature of dependent DNA is creating long-term returns, maybe for individuals or wealth distributors or smaller institutions and all the way up to sovereign funds.
And so with those vehicles, we have the ability to serve those investors in the format that makes sense to them. Break down the evergreen structure.
How does it work? So evergreen means, first of all, that there is no expiry date on the vehicle. So if you compare that to a closed-end fund, you would be looking at a vehicle that instead of distributing capital as and when assets are sold, will effectively take those distributions and recycle them to the benefit of investors.
So that's one different feature. The other one is on a closed-end format, what you get is an administrative burden can be quite arcane.
So in that arcane dimension, you have a multiplication of capital calls, a multiplication of distribution notices, and a need to monitor and spend resources, human resources and time and money to effectively monitor your portfolio. Not to mention that when you get those distributions, you have to figure out what's best to allocate at that point.
And so with that comes, I think one of the key barriers to entry for private equity, which is having a team in place that can take care and look after your capital. And then even if you're successful in building a closed-end program, it's going to take you years to achieve your target now.
So if you have a target net asset value in your strategic asset allocation, it's going to take you years to effectively get to that level and then significant additional commitments to maintain it. And so those evergreen funds effectively achieve or solve all of those issues.
Single cap to core on day one, highly funded portfolio, which is typically diversified in a Penton format, whereby you can achieve your NAF target quickly. And then finally, if you bring that to the small cap and mid cap segments of private equity, where Penton, we spend most of our time, it is even more difficult to get access to that segment because the GPs are smaller, they tend to be oversubscribed, or at least the good ones.
And then you need to build relationships with them over a long period of time, even before you can access them. And so we bring on top of the ease of execution, user experience, which is a little bit easier.
We also bring that differentiated exposure that, frankly, a lot of the wealth community hasn't been able to access historically. When we last chatted, you mentioned that in five years or so, you expect most of the top GPs to have evergreen structures.
Why is that? I think the user experience of evergreen funds is going to be the future. If you are a top quartile, small cap and mid cap GP, and you have generated consistent returns across a number of cycles, and you operate in a niche, typically an intersection of region, segment, and sector, and you can provide your investors with both a closed-end experience and an evergreen experience, it just makes sense to at least explore that second option.
Now, to be honest, to build an evergreen program, you need multiple years. It's nowhere near easy.
You need to start from the back office all the way to the front office, build your distribution channel, understand how you service those clients, very different servicing between wealth and institutional channels. And then also you need to understand that compounding in an evergreen format is a very different spot to generating a good IR in a closed-end format.
And so I think a lot of those investors with top decide, top quarter track records will consider that option. I have no doubt.
But the real question is, can they really achieve it and when? Because it's a very different and resource-heavy and complex undertaking. Are there tax consequences to evergreen funds versus traditional closed-end fund structures? In terms of how you compound in those funds, your unrealized capital gains will effectively be held at the vehicle level and the GP will be recycling on your behalf.
And so there is a scenario where if you don't redeem from the fund, you don't use the semi-liquidity feature, you may not crystallize any form of capital tax events. And so to some extent, that's something that may be a little bit more efficient.
But again, that really depends on individual countries and jurisdictions. It's like a 10-year fund is a forced distribution at year 10 is another way to think about it.
Who is your target customer for a product like this? We effectively want investors who have a minimum wealth level, but equity have a minimum income level and a minimum knowledge level. So we're looking at investors who understand public markets and private markets have a certain amount of activity in terms of investing their assets and understand the illiquidity that comes with this type of exposure and the risks associated to the semi-liquidity feature in an evergreen format.
Tier one would be your typical wire house, UBS, JB, CT, HSBC, et cetera. Tier two would be smaller banks with tier high scale or larger asset managers.
And then tier three would be your family offices, multifamily offices, independent wealth advisors, registered independent agents. And so the opportunity set is huge you can see that institutions typically would have 10 to 20 percent of private markets allocations when the wealth community is more two to four percent now the premiums that you can potentially get depending on your asset selection you know for the wealth community is significant and so what we see is a real tailwind here you know a real trend of the wealth community accessing those funds directly and or through the tier one or tier two banks.
When it comes to typical private equity funds, there's a criticism in the industry that by the time they get into the large wire houses, all the alpha has been absorbed and institutional investors are getting the alpha and then the high net worth clients will get the fund 15, 16 and a franchise. How do high net worth individuals know that they're not being adversely selected in an evergreen fund structure? Let's break it down.
I mean, what are the different dimensions of adverse selection? I think the main bias is that the larger banks are incentivized to effectively raise more capital more efficiently. And so there's been, I think, that overwhelming flavor of large cap, you know, in those kind of on those shelves.
Historically, you know, bigger banks are, you know, more comfortable. And I think, you know, quite rightly, you know, raising more capital in one go with a large cap brand so that their marketing is a little bit easier.
And also they can still generate very good returns. Now, if you think about, take a step back here, the large cap universe is much smaller than the mid cap one.
And so in terms of generating that alpha, I think banks, a number of banks are already distributing small cap and mid cap funds, in particular mid cap. But in terms of the evergreen wave, tier one landscape is dominated by those large cap single GP branded evergreen funds.
Now, going forward, you forward, those funds will have significant deployment pressure because of the commercial success. And you may argue that some of them may experience some lower performance as a result.
And so to your point, what's important there is that the banks themselves start diversifying their shelves to incorporate more of that mid-cap and lower mid-cap alpha. And evergreen funds can play a key role there because they bring that easy to sell, easy to understand and easily manageable format to the clients.
If you look at the wealth community is not only through banks, it's not only intermediated. The large part of wealth is direct access.
We know family offices, multifamily offices, asset managers. We can be a little bit more entrepreneurial.
They have less inertia maybe than a tier one bank.

And those groups are already all over small cap and mid cap.

That's what we've experienced.

Now, that's why our US fund has been scaling so quickly.

And our international fund is also on that same trajectory of scaling.

And those investors who have more of that entrepreneurial mindset and understand the benefits of going away from large cap, you know, we really, I think, create momentum

and scale those small cap and mid cap managers. So they become eligible, you know, in terms of scale for that tier one distribution.
Now, David, the second point, which is very important here beyond the potential selection bias, ease of distribution, et cetera, is really the fees. And it's only natural that the more intermediaries you have between a client and a product, perhaps the more, you know, layers of fees you're going to have.
And at Benton, we've paid particular attention to this. And there are multiple models emerging in the evergreen space.
And how does it functionally work? Generally, allocation policies are based on the pro-rata approach. So let's say you invest into a GP's program, you're going to have an allocation waterfall, as it's called.
And more often than not, GPs would have what is called a pro-rata approach following a principle of fairness and so you would effectively have a number of clients potentially participating in every single deal in that waterfall and every one of those clients will have portfolio guidelines and concentration guidance and so based on that you can determine the actual bite sizes per type of deal that you want to bring to the vehicle or to the client.

And then if there is overallocation in one of the deals

and the capacity is constrained,

at that point, you prorate everyone back

based on their bite sizes.

I mean, Penton is, you know,

you have to also keep in mind,

most GPs are regulated.

So there is a duty of fairness to,

you know, transparency, fairness, and, you know, following that pro-ata approach that most DPs will effectively be implementing. Tell me about Pantheon's thesis on small and middle market buyout funds.
The small cap and mid cap market is very compelling for a number of reasons. First of all, the universe of companies in the mid cap and small cap segments is way bigger than large cap.
So you have more potential companies to look at and buy and grow in different sectors. And that typically really represents the reality of the economy, right? I mean, large cap and mid-cap is the economy.
Now, in the large cap space, the number of companies is much lower. They are worth a lot more, but you have less of them.
So that's the supply part. In terms of demand, what we also like is that large cap funds are just getting larger.

I think it's a feature of private markets these days and for the last five years really.

And what it means is that you still have a very small number of companies where the number of dollars or the amount of dollars chasing those companies just keeps on getting bigger.

And so what you have there is GPs who struggle to differentiate versus each other and have to differentiate on pricing, which means that they typically use more leverage. And you can argue that some of the quality or the selectivity ratio is also diminishing, because if you need to deploy capital as a large cap fund, you have three or four year investment period, you can't just sit around and wait for the years to come your way.
So the combination of higher pricing, pressure to deploy, higher leverage, we think is not necessarily the best place to be in for private wealth investors. So that's the first part.
The second part is, you know, we've looked at a number of companies that we have invested in over a little bit more than 20 years. And what we have seen is a few key metrics.
The first one is that in the small cap and mid cap segment of that population of companies, the top line growth on an annualized basis is a little bit higher every year. It's a little bit higher, but every year.
So over time, that compounding power of annualized top line growth is actually quite powerful. Second, on the earning side, EBITDA side, what we've seen is that the actual delta between mid cap large-cap is also higher, but a little bit more than the top line.
And so what you see there is effectively some form of compelling signs that as we buy those smaller businesses, they can grow faster, but most importantly, they can grow profitably. You know, you have 10,000 GPs globally that we track, and we only invest with 120 to 140 of them.
We call that the buy list. So that's 1.2 to 1.4% of the private markets universe.
And these GPs tend to have an intersection of factors that we like. So segment focus, sector focus, regional focus.
What are the characteristics across the 1.2 to 1.4% of buyout managers that are on your buy list? In private equity, in the mid-cap segment, you want to be a local speaking to locals. And so that buy list will be split between the US, Europe, and Asia.
And what we try to look for is a clear focus in terms of four key dimensions. A stable partnership and team where the culture is healthy, there's no succession issue.
And we're looking for also a team that has a culture of grooming and developing the younger professionals. That's quite key to everything we're on the right.
Second performance, we aim for first and second quarter GPs who have a proven track record. So typically second generation funds at the very least and where we can track to some depth in terms of realized track record.
we want to make sure that those gps have demonstrated that they can exit companies because buying them is the easy part selling them is the hard part with a controllable downside risk so a lower loss rate than the industry so that's all the way down to the gps we work with and then you have the process part where a lot of the value creation in private equity is about the process so having an operating team that can implement a repeatable playbook to effectively take those smaller businesses and build them up on the way to the large cap exit through operational improvement, improving the processes, supply chain management, CRM, digitalization, go-to-market, technology stack. So really bringing that know, entrepreneurs who don't necessarily have that muscle memory of the time, to be honest, to really kind of build the institutionalization of their platforms.
And then finally, the philosophy. And that's where, you know, small cap and mid cap is very important to us.
So the way we think about this is our sweet spot fund size range on the buy list is half a billion to 2.5 billion. And then we spend most of the time at half a billion to 1.5 billion.
So in terms of enterprise value range, you're going to be looking at 50 million to 400 million or thereabout. And those companies are real small gap and mid-cap.
And David, to be honest, the buy list is always a work in progress. We have churn.
We let some know, for a variety of reasons, but mostly performance related or fund size getting too big or team issues, you know, like strategy drift, where, you know, we feel that this is not called to the Pentium DNA. And, you know, the GP is effectively moving into those large gap segments where we spend less of our time.
How do you construct a portfolio of small to middle market buyout? The strategy is driven by a few key requirements. First of all, building the diversification of the portfolio is key.
Second, the maturity profile, because with that maturity comes sometimes a better forecasting ability for distributions, which can then be recycled into that evergreen program and create a certain form of predictability of compounding. And then you have obviously the unfunded capital portion.

So making sure your deployment is efficient.

And with that, you really have the trifecta of what makes an efficient compounding engine.

Now, in terms of general house view on the market, what we have is 70% of our deployment

into small cap and mid cap and growth.

And then we inevitably pick up some of that large cap exposure as well, because the LP diversified trades that we buy, you know, big portfolios coming to market on the secondary market. What we have is sometimes we can just handpick the assets that we want, but most of the time we have to buy, you know, a number of funds.
And some of those will have some large cap exposure. So we always have that friction of amount, you know, typically a quarter or maybe a third of that large cap exposure.
You mentioned GP led continuation vehicles, secondaries, co-invest. Talk to me about the fees on those and also the blended fees for Pantheon's funds.
So if you look at this from kind of the most expensive to the cheapest, the most expensive way to access private markets is a primary program. You're going to pay full stack to the GP.
So typically 1.5% to 2% management fee based on commitments for five years and then stepping down as the fund comes out of its investment period. And then you're going to have a 20% over 8% hurdle on an IRR basis.
So that's always the most expensive way to access private markets. Now, what we do is we effectively buy diversified portfolios of those primary commitments four to seven years into their life cycle.
So they are deployed. We have a high level of visibility on the assets.
The funded ratio is high. And most importantly, we have a good ability to forecast distributions and buy them at a discount.
So with that discount, I think comes an ability for Pantheon and typically the secondary market to price in the fee load of those primary commitments in the future, but into your purchase price on day one. And so although you keep on paying those fees, you can effectively price them in into your purchase price.
And so that benefits our clients in terms of, you know, you're still paying the fees, but you get that immediate capital gain on your discount. So that's the second most expensive.
The third one is a continuation vehicle already way more cheaper. So on this fund, you typically have a management fee, which is 50 to 75 pips of the assets in that continuation vehicle.
And then your carried interest would be tiered. And so the way it works is you would have a combination of IR hurdles, sometimes TVPI hurdles, you know, in one or two or three tiers.
And depending on the final performance of the asset, you pay less or more performance fee depending on the TVPI or the IR. And so that protects your downside and alignment of interest.
And we like that. And then finally, you have the co-investment piece.
And co-investment is really a function of the strength of your primary platform, where you have those 120, 140 relationships globally, and you commit the vast majority of your primary capital with them. Those GPs effectively would come to you and treat you as a partner.
Because primary capital is the life and blood of a relationship in the private markets. I mean, GPs need to raise every three to four years.
And so if you're a predictable source of commitments, they would be working with you in between fundraisings. Do you track the co-investments that you get per manager? Is that part of your selection criteria for future commitments? Our priority always is to back the best managers.
I mean, that comes always first. Now, it happens to us that a lot of the best managers in the market are also some of our longest standing relationships.
And as part of building those relationships over a number of years and committing time and time again to their primary funds, we've built those pretty creative no-co-investment relationships with them where they see the benefit on their end of having access to a pool of capital which is sophisticated and can help them close deals. And on our end, we can get access to those damn deals typically with no fee and no carry.
So what it means is that we are in a position where we generate a net performance, which is almost equal to gross performance. And on the topic of, we discussed earlier, how the alpha comes from obviously the upside, but also the fees, having a quarter or third of your evergreen program allocated to assets with no fees or almost zero fees is extremely powerful over the long term.

So double click on that.

You said that your gross and your net performance is essentially the same. What did you mean by that? So if you co-invest with a GP, let's say GPA brings you a co-investment opportunity.
GPA will invest 100 million from their flagship fund, but that's the maximum they can invest into that asset according to their concentration guidelines. But the deal is 150 million.
So they have 50 million of extra capacity that they need to syndicate. At this stage, a GP would call our co-investment or primary team and say, I have that 50 million stub.
Would you like to participate into it? And in exchange for getting access to your co-investment capital, we won't charge you any management fee or any carried interest. That's what I mean by it's almost the same.
The only difference between the gross and net is really the expenses of the co-investment vehicle itself. That would be the ongoing expenses of the vehicle, admin, custodian, ongoing expenses.
But it's much lower than you would get from paying a full stack 2% and 20 over 8 on the primary fund. And so that's why it's quite, it's quite powerful for us in an evergreen format to bring those deals to the wealth community in a format where they pay no fees.
So for every dollar that you invest in that co-investment bucket, you effectively write off a dollar of full fees that you would pay somewhere else. Or, you know, you at least you balance it out.
And so overall, your total expense ratio is, you know, a little bit more compelling. Talk to me on your co-invest strategy.
So if one of these 120 managers bring to you a fully aligned co-invest, so you mentioned they invested 100 million, they're offering 50 million co-invest. Is that an automatic guess? Talk to me about the process.
Typically, we would close one deal out of seven that we receive on the co-investment side. The way it works is we have obviously the primary knowledge of the GP.
So we know exactly what they're good at. So we have that notion of GP fit.
So is that a deal that fits the GP's kind of strength and positioning? So that's always the first step is are they within scope of their strategy and process and what they're good at? And then we can also effectively underwrite the asset directly. So we have a team internally of dedicated co-investment professionals who typically would have M&A backgrounds or direct investing backgrounds.
You know, most of them would have been with the firm for a long time and they have deep track records. And they've been working with a spectrum of GPs.
So they have effectively refined and finessed, you know, their deal selection skills, looking at different underwriting banks, right? because every GP will underwrite differently. And so that's really where we have access to the GP track record, the sector dynamics.
We have a whole database internally of deals that we track on a quarterly basis. And so that really informs, beyond the actual underwriting of the GP, that really informs our views on that particular industry or sector or asset.
Just to play devil's advocate, you've already underwritten these managers to be your top 1%. In essence, you're trying to outsmart the managers.
Why is that? And just talk to me about that. Why is it one in seven? Intuitively, it would seem like maybe you would do half the deals or 75% of the deals.
Well, I think the first thing is that we have our own portfolio construction guidelines on the co-investment program. And so we look to be diversified as well.
And so depending on the available capital for any type of deals at any given time, there are deals that we just can't do, or we think is not the right fit for any given vehicle. Now, you also need to think about the fact that some GPs are maybe less experienced or we have a more nascent relationship with.

And so our comfort around their level of underwriting and the depth of our actual investment record with them, including exits, is necessarily more shallow because we haven't been with them for the same amount of time. And so these GPs, the underwriting bar is naturally higher because we want to make sure that as we build that co-investment relationship with them, it is middle of the fairway, no losses, and compelling alpha.
You mentioned diversification. Across what vectors are you trying to diversify? First of all, geography, very important.
Our view at Penton and one of the benefits of being a global integrated platform is that we follow global deployment patterns. And so the bulk of our deployment is in the US, followed by Europe, followed by Asia.
So, you know, we have some concentration and portfolio guidelines from a geographic perspective. Second, we look at effectively concentration per sector, stage, and we also pay particular attention to levels of leverage and entry valuations.
So we don't want to build a co-investment program where we just accumulated deployment at the peak of a cycle with unsustainable levels of leverage so we pay attention to you know a different a number of vectors you know across you know geography sectors vintage as well gps and all the way down to the actual idiosyncratic factors of the deals and i can tell you that some GPs have better track records than others on the co-investment side. And so when those come through, the bar is still really high, but we know that we've had so much success with them.
Some GPs we've never lost a cent with on the co-investment side. It's been just a very smooth run.
And so when those deals come through, there is that embedded muscle memory in the firm where perhaps we can effectively have more conviction from the outset of the process. But if it's a more nascent relationship, we would be looking at effectively re-underwriting quite substantially and forming a view on, you know, is that really what we think is a good deal? Do you expect the evergreen structure to make its way into the venture capital ecosystem? I think it will over time.
I mean, venture is a very different animal. If you compare it to small gap, mid gap and growth, no, late stage growth, I would say, because venture can go all the way to early stage growth.
You know, what really differentiates it is venture can be a little bit, you know, of a black box in terms of valuations. So although you may have momentum and, you know, some pretty significant unrealized gains, you never quite know what's the process that got you to that valuation.
And the most successful venture GPs wouldn't be sharing any form of significant details on the valuation methodologies because it's quite private for the right reasons. And you sometimes don't even know what the performance level of the asset is.
You don't know what the revenues are, the top line or the break-even expectations or the profitability pathway. And you don't know the burn rate.
I I mean all of this is quite confidential in a lot of situations and so you know you have to think that you know that's one key difference versus more cap mid cap and growth where you have a great level of transparency and if you if you've been in those segments for quite some time now the second part is that evergreen funds need some form of predictable distributions so that you can recycle those distributions and compound them to the benefit of your investors. And venture effectively can be, if you're very successful in venture, you're going to end up probably having a fairly large number of IPOs at exit.
That's typically where the venture managers generate a lot of their alpha is for public listings. When you do that, you're effectively transferring your shares in public markets, and you typically have locked barriers.
Not only are you locked, but you also have a more valuation daily profile where your share price can go up and down. And honestly, you have no control over this, so you can hedge it, but it's expensive.
So that's always a bit of a, you never know where you're going to get your liquidity and what valuation. And then the last thing is the venture portfolio DPIs.
So, you know, the actual distributed to pay-in ratios, you know, for the first few years, you typically get nothing. and when you get something that's after crystallizing a large amount of losses i've heard multiple times that a good venture fund should lose 40 to 50 percent of its capital

i mean that's a staggering loss rate if you think about it you know if you lose one dollar losses, I've heard multiple times that a good venture fund should lose 40 to 50% of its capital.

I mean, that's a staggering loss rate if you think about it. If you lose $1 out of two over a period of time, you need to make sure that whatever you have left in your book is going

to generate at least two times and you only return cost at that point. And so there's that

kind of volatility in that behavior combined with lack of forecasting ability on distributions

and that back-ended public exposure evaluation volatility that may actually lead you to have

Let's go. behavior combined with lack of forecasting ability on distributions and that back-ended public exposure valuation for the TTT that may actually lead you to have one of the most

volatile evergreen valuation environments ever created.

Small buyout competes with venture capital in institutional portfolios.

Why should an LP put their incremental dollar into small buyout versus venture capital?

In venture, my opinion is that you really want to go with those top tier groups. And, you know, those top tier groups are heavily oversubscribed.
So what that means is that, you know, your potential deployment budget, if you're on large institutions or even an institution, you know, you're going to be capped in terms of what you can deploy if you want to maintain that top quartile or top tier venture focus. Second, if you want to do venture and you want the risk reward to look like small cap, you need to diversify your venture bucket extensively because if you start taking GP risk or sector risk or idiosyncratic risk with your venture allocation, this won't end well.
And that diversification applies per GP but also per vintage. there's i mean it's very important it's crucial actually to participate in the venture if you commit to venture you need to come in for a number of years every year so that you know you can participate in multiple vintages because in venture you have good and bad vintages for example trying to come out of covid the valuations went through the roof you B, C, D, we're looking at a significant increase

in valuation trends.

And so if you only came into

those two or three vintages,

you would be probably looking at losses

or, you know, some form of volatility today.

And so you really want to make sure

that you commit to like a five to 10 year program.

Now, I think there's that myth, David,

that, you know, small cap is more,

is volatile.

It's a myth.

If you look, as I explained earlier,

you know, the only thing that doesn't matter in private equity is size scale matters but size doesn't so if you go into small cap and mid cap gps or small cap gps you're going to be you're going to be buying smaller assets yes so potentially a little bit more volatile but better alignment as we discussed you're investing with the principal you're probably one of the first institutional investors and you can bring your your playbook, sector specialty, regional specialty, know your track record and process and philosophy to really help the entrepreneur grow. And in that, there is magic.
That alignment between a GP that is very focused and an entrepreneur that wants to scale is really powerful. Now, those assets also tend to be profitable and growing quickly.
And you buy them in a fraction of what you would pay for a large cap asset with a fraction of the leverage.

And so what matters here

is the risk spectrum.

It's not size.

It's actually how much you pay,

what's the leverage

and how much the asset will grow.

And so I think that myth

needs to be debunked.

Is that myth there

because small cap public companies

are much more volatile

than large public companies?

Small cap companies,

you know, would not have the same features than small cap private companies. So the public companies? Small cap companies, you know,

would not have the same features

than small cap private companies.

So the public companies are different.

And on the small cap private side,

as I mentioned, you know, you're looking at,

I can't comment on public companies.

It's not my specialty,

but on the private side, I can comment.

And you're looking at great alignment,

cheaper valuation, lower leverage,

and potentially asymmetric growth

in terms of top line and EBITDA margins.

And then, David, the best part about this is on the private side, large cap funds are getting larger.

I mean, this is a key part of the investment thesis here.

These funds have pressure to deploy because they have that pressure that typically would come to buy tokens,

small add-on acquisitions from small cap funds, or maybe platforms from mid-capcap funds and that is going to be a once-in-a-lifetime

opportunity the large cap segment has never been larger it's never been tested at that scale and if you look at the availability of leverage the cost of leverage you know following the fed pivot there's an opportunity here where you know leverage will remain expensive but will become a little bit cheaper versus the last you know few years so that may reopen the floodgates in terms of those large-cap GEPs being able to effectively start investing at some more scale. And if they don't have access to that leverage, what they're going to have to do is focus on M&A integration, small add-ons, tokens.
And that also works in our favor because they're going to be leaning into those small-cap GEPs to effectively buy assets that have been created. What would you like our audience to know about you, about Pantheon or anything else you'd

like to shine a light on?

Pantheon is really a firm that has the interest of the clients at heart.

And that's something that we've spent so much time on, building over four decades with the

institutional community.

And the brand there has been well established in terms of you know being great

stewards of capital and working with our institutional investors to deliver access to

small cap and mid cap and so that gateway positioning or you know being a point of access

for larger institutions i think is what we're bringing now to the wealth community and maybe

smaller institutions or you know family offices multi-family offices and over the last 10 years

we've brought that in a very innovative format right so we were first movers or early movers

into that semi-liquid kind of story and journey. And we look to effectively launch new products as we scale.
And we're going to be bringing very differentiated risk-rewarded. Instead of being large-cap levered risk-reward, we're going to be looking at providing that gateway access, the single access, core access, diversified access to the wealth community.
And so in that, I think there is a great kind of cost assessment and cost to return analysis. We are great stewards, cost focused, making sure that our solutions are cost efficient.
But with that small cap and mid cap focus, we think we can generate compelling returns in some alpha. And so the ratio of cost to potential alpha would be comparing as a result.
And that's really where I think the Pantheon DNA shines through is we've been so diligent with that focus on making sure we provide the best products. And for me personally, David, I'm incredibly excited to be a portfolio manager on the evergreen side.
Well, Victor, you've been a trailblazer in the evergreen space.

Thank you for sharing your story and Pantheon story and look forward to staying down soon.

Thank you for having us, David.

Look forward to staying in touch.

Thank you for listening.

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