Journal

PRIVATE EQUITY - SOLA ADELEYE

Where are you originally from?

I grew up in Lagos, Nigeria. I came to the US for college a little over a decade ago and have lived all over the East Coast – Washington DC, New York City, Philadelphia and now Farmington, CT.

What is your education and career background?

I studied Finance at Howard University in DC, which is where both my parents and 3 siblings attended. During undergrad, I was fortunate to secure an internship in investment banking in NYC where I advised governments and private equity funds on the sale and purchase of infrastructure assets. We focused on airports, ports, toll roads, parking garages, etc.  in North and South America. In my second role in investment banking, I gained exposure to large institutional investors such as public and private pensions, endowments and family offices that were looking to sell their illiquid private equity and venture capital holdings. My investment banking experience really was a great foundation for my career and helped solidify my interest in private equity. After a few years, I decided to take a break from banking and went to pursue my MBA at the Wharton School where I majored in finance and entrepreneurial management. Before getting into Wharton I knew I wanted to transition to the buy side, and so from the onset I made sure I spent a lot of time meeting people, attending relevant conferences and leveraging my network. All these paid off as I landed a PE job after graduation, working in a niche and growing part of the PE market.

What does an average day look like for you?

Currently I work in the private equity secondaries space. We provide liquidity for High Net Worth (HNW) individuals and institutional investors that invest in private equity, real estate and real asset funds but for one reason or the other want liquidity before the fund’s term is up. A typical investment process involves proactively finding an investor that wants to exit their PE commitments, underwriting / pricing the fund and underlying assets and taking over their remaining liabilities. In other words, we make an otherwise illiquid asset class liquid as most funds are closed-ended (unlike the public markets) and an investor is locked in for 10-12 years. Investors these days use the secondary market to manage their portfolios for several reasons including regulation (Basel III, Volcker), change in investment strategy, target allocation issues and liquidity management. As I mentioned before, we are seeing increasing activity in the secondaries market with almost 50% increase in transaction volume from 2013-14.

How does Private Equity, Hedge Funds and Investment Banks compare?

There are a few similarities between hedge funds and private equity.  They are both buy side, both generally have similar sophisticated investors, and both employ a variety of strategies to generate returns.  However there are also many differences.  HFs generally focus on publicly-traded investments while PE focuses on private investments; HFs are generally short term investors while PE invests over a longer horizon, 5-7 years; and finally HF investors can make a “redemption request” as often as monthly or annually whereas a PE investor can only receive cash when the PE fund sells the entire investment (usually after 5-7 years of owning it) or if the original investor can find a secondary PE firm to buy their fund holding.

On the other hand, investment banks are on the sell side. They are advisors trying to “sell” their advisory and capital markets expertise.

Why should High Net Worth Individuals (HNWIs) and other institutional investors work with a secondary PE firm?

There are two ways HNWIs and other investors can work with secondary PE firms. First as an investor in a secondary fund, and second as a seller to a secondary fund.

I’ll start with the easy part. Secondary funds create liquidity for sellers in an otherwise illiquid asset class. HNWIs that want to fully exit the alternative assets class, change their investment strategy or have a liquidity need due to macroeconomic or personal factors can use the secondary market to their advantage.

In addition, HNWIs and other investors can add a secondary fund to its investment portfolio. The secondaries market has historically provided strong risk-adjusted returns, accelerated distributions (compared to primary PE funds) due to J-curve mitigation and offers broad diversification across vintage years, geography and investment strategy.