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Intro: Hello, welcome to Dealmaker Insights, a podcast brought to you by Reed Smith's corporate and finance lawyers from around the globe. In this podcast series, we explore the various legal and financial issues impacting your deals. Should you have any questions on any of the content through this series please contact our speakers.

Brian: Welcome back to Dealmaker Insights. Excited with the new series spotlighting the private equity industry. My name is Brian Murchie. I'm the Client Development Advisor at Reed Smith. My personal background is I started out at Platinum Equity on the business development team for seven years. From there, I moved into in an investment banking role. I was with Stifel in a West Coast sponsored coverage role. And then from there, I moved over to Raymond James also as a managing director in a sponsor coverage role and excited for Rush Harvey, who's a good friend of mine and a, and a, and a former colleague at Raymond James, who's in a private capital advisory side. I think he brings a very unique perspective given where he sits in the market and the state of the market. So welcome rush and excited to have you on here How are you doing,

Rush: Brian I'm doing awesome. Thanks so much for having me today.

Brian: Great. I think you bring a very interesting perspective. Rush just given your background and kind of where you sit in the market. Could you discuss your transition from being a former LP to to the private capital advisory side?

Rush: Sure, thanks Brian. It's been a journey that's for sure. I was a limited partner my entire career up to joining Raymond James on the private capital advisory side about two years ago, most recently managing the endowment with the team at Kansas State University Foundation and then at the Texas A & M University Foundation. So go cats and gig em’  Aggies. And it's been a great transition to the private capital advisory side to bring an LP perspective to how we do business, how we serve our clients and ultimately how we try to be a source of relevant deal flow to limited partners.

Brian: and Rush I, I did notice you have a recent article out there that you published. Uh could you kind of  discuss that? Like I know it discusses, you know, your background and kind of your entrance into the private capital advisory space. But if there's anything there you could touch on, it would be helpful.

Rush: Yeah. Happy to Brian and, and thank you for reading. I appreciate that. The title of the article is Reflections From the middle seat. So in, in the current role we are serving GPs, sponsors and also limited partners, LPs. And so we want to be as helpful as possible to both. And, you know, sitting in the middle seat on the airplane usually isn't the most fun, depending on who you sit next to. But in the current role, I'm having tons of fun because the market needs support in regards to fundraising. It's such a tough fundraising market right now. So GPS need a partner to help them navigate and we're trying to be a good partner in the market. But limited partners, they need good deals and they wanna work with folks, they trust and you gotta earn their trust. So sitting in between LPs and GPs, I have a pretty unique perspective. You know, being an LP understanding the hard work it takes to execute a process to get a deal done, to find the right partner to help you serve your institution, to enhance your mission. For me at two public land grant university cities. The mission was so important, thinking about those kids that we served and the scholarship dollars we tried to generate and making those private capital commitments really, really mattered and we had to have good partners. So trying to be a source of those types of great deals for those limited partners and then helping GPs, you know, tell their story in a way that resonates with those limited partners. And you know, the best private capital advisory firms play that role in the middle seat, but then they get out of the way when it makes sense and, and you let the LP and the GP build that relationship and, and stay as active as you can to be a good partner to help them ultimately build that relationship more formally. So, it's been fun.

Brian: Thanks Rush. That's uh a wonderful insight here. And I, I think that's a good segue into kind of the state of, of the fundraising market. Could you just kind of touch on, you know, like the current state of the fundraising market and how this year is a little different than last year over how it might face a lot of the same uh challenges.

Rush: For sure. To say it's tough would be a massive understatement. Limited partners just don't have the capital to deploy like they did a few years ago, you had public markets really underperform a few years ago, which makes allocations to privates go up, which means you have less budget for capital deployment. And so with the public markets being volatile, budgets got tight and they're still tight because private markets have continued to perform. But now you have public markets coming back. So what we're trying to help our partners understand is you've got to play the long game, you've got to expect to be in market longer. And there are a few boxes you have to check for limited partners given how tough it is from a capital deployment standpoint for them, the boxes that you have to check. So deals are getting done, capital is being raised, but it's taking much longer for funds to reach their target. And it's really been a biased mark in regards to fundraising, the bigger funds, those raising 10 billion and above have seen a lot more success than those groups raising 10 billion and below. That could be a flight to quality for LPs. It could be working with managers where they have longer lasting relationships as well in the more mid and large cap part of the market. Some of the data doesn't tell you exactly why LPs are favoring larger funds. But you've seen capital flow there in a much bigger way than in your past. That is what we're seeing. But at the same time, it's still tough for everyone outside of a few larger names.

Brain: Yeah. Thanks Rush. Yeah, I know. It's tough out there. I mean, in your seat, have you seen a fund that has historically had, you know, a good size fund, let's say they raised 650 million and, you know, they've been trying to raise, you know, another fund and can't, can't quite get to 650 but, you know, they can raise 500 so they're able to raise a smaller fund and, and they've said, ok, you know, let's just raise, you know, like a smaller fund on our next one and we'll deploy this app write some larger checks and then, you know, we'll go back to market in a couple of years when, you know, like the fundraising market might be a little different?

Rush: Sponsors in that situation are taking what they can get. So if they can't get to their former fun size, there is that conversation of, hey, let's get to a third number and go execute our process. I do think LPs in the future will look at a down fund with a little more grace than they would have in the past raising a smaller fund. Or it being significantly less than what you tried to raise was an absolute negative for most folks because you're trying to raise more capital. You've hired more people, you wanna do more deals and you don't get there just a bad sign in the market. But given how tough it is now, if it was 650 you raise 550 for the next one and you can help folks understand why. Hey, we had a strong re-up from our current LP base. Hey, we did bring in some new LPs. We saw the writing on the wall with the market. We didn't want to be in market 18 months. We want to execute our process. We want to put money to work because this could be our best fund ever and come back later to your point when things are more normalized. I do think most LPS will understand that. But also if it is a smaller fun explaining to the market, why you don't have to let people go, why you can still execute, why the pipeline is still going to be robust, et cetera. But that example, 650 to 550 isn't that material but say it was 650 then you raise 300 then you're hoping to go get a bunch of co-invest to do similar size deals, but you haven't done a lot of co-invest in the past. That's something LPs are really, you know, trying to avoid. So there is grace in the market, but you wanna make sure you can get as close to your target as possible. And that's where we're seeing a lot of demand for our services because we can come in and help tell that story, connect them with the right pools of capital. I want to see those types of opportunities to help them get to that part to help them get to that target. Wearing the old LP hat comes in handy here because I was always concerned about, hey, are you raising too much capital? And if you're increasing your fund size by 20% or 100% why, why can you execute the process? Why is it still reputable? Why is it still relevant? And so we're asking those same questions as a placement agent partner to ensure that we can get LPs interested in the mandate and answering the fund size question because it's usually the top five question that LPs want to understand when they look at a new mandate.

Brian: Got it. No, that's very helpful. Thanks, Rush. And could you kind of give us, you know, like a state of uh the uh the secondary market and how it compares to last year? You know, I know, you know, continuation vehicles had certainly been increased over the last, you know, a year or so. So just, just kind of curious your, your thoughts on that and the the current state of the market with that?

Rush: The secondary market is here to stay and the amount of GP led transactions we believe will continue to increase, you know, going back over time. LP led secondaries for the majority of market value and GP led volume has continually increased. If you look at the last five years, it's essentially doubled and we expect that to continue over time because GPs need ways to enhance their liquidity via generating it. And it's harder to do that in an environment like we're in today. Distributions, back to LPs, are essentially at all time lows. Contributions and distributions in regards to the mix, they're not equilibrium. And so that's a problem for LPs in regards to committing capital, they're used to the money coming back from their PE relationships, using that capital to contribute to the next fund and they can't do that. So a continuation vehicle. A GP led secondary is a new technology that allows sponsors to generate that liquidity, lots of skepticism in the market in regards to LP sentiment on these structures. And we advise all of our clients that you have to do these deals for the right reasons. You've owned the asset for at least three years, you love the asset, you're going to provide a great return to your LPs. If I underwrote a GP for a three X net return and a CV is coming my way to analyze and I'm gonna get that return that I underwrote, I'm gonna have a much higher probability of being open to doing a secondary. But if it's a 1.4 X, they've held it for 18 months, it's like, why are you doing this and we really work with our partners to make sure that they get support from their LP base. And if LPs love the deal, they can stay in it. But if they need that liquidity, which is what most LPs need right now, more than ever, they can get the return, they underwrote on that deal and they can use that capital to contribute to that GPs next primary or to commit to another opportunity. And we will help them find new investors on the secondary side to come in at the new valuation. And there's more and more capital looking for GP led secondary transactions than ever before. You've seen Lexington raise a $23 billion fund. You've seen groups like HarbourVest and a uh continue to commit capital to these types of deals. And there are more new entrants in the market focusing on GP leds. So we're excited about the market, but we wanna make sure all of our deals really pass that quality a threshold so they can be successful in the market or the selling LP feels good and the new partner for the GP feels good.

Brian: Thanks Rush. That's very helpful and just given all all that and with your background into your new role here that you can discuss, you know, the Raymond James entrance into the private capital advisory market.

Rush: Absolutely, really proud to be in this business a few years ago, let's say three years ago, if a sponsor needed help raising a fund raising capital for deal by deal or doing a secondary, they weren't calling Raymond James a lot of great competitors and peers in the market that were in that business winning those mandates. And Raymond James said, look, we need to compete here from a middle market, investment banking standpoint, always very competitive and very proud of our business. But private capital advisory was essentially a hole and made an acquisition of a boutique placement agent, secondary advisory firm, Cebile Capital based in London. Cebile was founded by my boss Sunaina Sinha and Raymond James got to know Sunaina bought her business and the goal has been to replicate what Sunaina built in Europe, a great business replicate that here in the US. And I was hired a few years ago to be on that team to help grow that US business and really proud of the work we've done. We've got about 60 people on our team today with offices in LA, Chicago, New York, West Palm. I'm down here in Houston, then half the team is in London. So just getting started, you know, we've been in this space under the Ray J umbrella for almost three years and again, just really proud of, of the team that we're on and excited about what's ahead uh to be a good partner in the market.

Brain: Thanks Rush. That's all the questions I had for today. You know, it's really a interesting time in the market. You know, I certainly appreciate your time to join us on Dealmaker Insights and I wish you and your team and uh Raymond James all the success here in 2024 and uh looking forward to staying in touch.

Rush: Thank you, Brian. Really appreciate you having me on the show today and can't wait to listen to future episodes.

Outro: Dealmaker Insights is a Reed Smith production. Our producer is Ali McCardell. For more information about Reed Smith's corporate and financial industry practices, please email DealmakerInsights@reedsmith.com. You can find our podcast on Spotify, Apple, Google, Stitcher, reedsmith.com and on our social media accounts at Reed Smith LLP on Linkedin, Facebook and Twitter.

Disclaimer: This podcast is provided for educational purposes. It does not constitute legal advice and is not intended to establish an attorney client relationship nor is it intended to suggest or establish standards of care applicable to particular lawyers in any given situation. Prior results do not guarantee a similar outcome. Any views, opinions or comments made by any external guest speaker are not to be attributed to Reed Smith  LLP or its individual lawyers.

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