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Navigating The Future Of Private Equity With The Voice Of The New Generation

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I had the pleasure of meeting Danai Musandu, Vice President of Investor Relations at HPE Growth, in person at the Superinvestor conference in Zurich. Our in-depth conversation provided profound insights into the transformative shifts occurring in the private equity (PE) industry, touching upon generational changes, decentralization trends, the influence of cultural icons, and the future metrics of success.

Generational Shift in PE Funds: A Natural Evolution

‘New capital managers that are younger and cultural icons, such as Kim Kardashian and Serena Williams, capture the psyche of popular culture,’ Danai remarked when asked about the generational shift happening in PE funds. According to her, this shift is a natural evolution shaped by cultural influences and the passage of time. She highlighted four key areas where the generational shift is most evident:

  1. Cultural Icons in Finance: The emergence of younger capital managers who are also cultural icons, exemplified by figures like Kim Kardashian and Serena Williams.
  2. Impact Investing: A surge in topical investment areas driven by the generational consciousness, with “impact investing” being a prominent and evolving category.
  3. Democratization of Access: More democratization, nano/micro-aggregation, and decentralization of access to capital markets through innovative platforms, providing access to financial products previously inaccessible.
  4. Tech Entrepreneurs Shaping Investments: Young tech entrepreneurs exiting businesses and redirecting their wealth into areas aligned with the interests and context of our society.

Decentralization and Elimination of Middlemen: Shaping Our Destiny

‘There has been a trend to eliminate middlemen and take hold of one’s destiny. However, with a backdrop of asymmetry of information and access, those inefficiencies will enable the existence or need for middlemen,’ she explained. Danai emphasized the role of AI and decentralized finance (DeFi) in changing the game, providing increased access to information and transparency in investment processes. She further detailed the nuances of this trend:

  1. AI and DeFi: The trend to eliminate middlemen is underpinned by the rise of AI and decentralized finance (DeFi), enabling greater autonomy and transparency in investment processes.
  2. Sophistication of LPs: LPs becoming more sophisticated and informed, reducing the need for certain middlemen services.
  3. Transparency Through DeFi: Platforms like DeFi offering transparency on investments and giving LPs greater control over decision-making processes.
  4. In-House Fundraisers: A rise in in-house fundraisers and less reliance on agents with competing mandates.
  5. Growing Retail Investors: More retail investors participating in private markets through platforms outside traditional banks, offering lower fees and easier access.

TikTok Finance and Cultural Icons: Shaping Finance Conversations

Regarding TikTok Finance and the impact Kim Kardashian had on her firm, Skky Partners, Danai acknowledged the platform’s role in democratizing financial knowledge. She highlighted that big influencers like Kim Kardashian, with a track record of success as entrepreneurs, hold an advantage due to their massive social influence. According to her, Kim’s involvement in PE brings attention to the industry and could influence how other private equity firms approach investments or partnerships. Danai also delved into the future of this movement:

  1. New Generation of Emerging Influencers: The future holds promise for a new generation of emerging influencers and financial experts from smaller GPs, leveraging short-form video content to engage and educate audiences.
  2. Branded/Celeb Crowd-Funding Platforms: Anticipation for the emergence of platforms where followers or fans support companies endorsed by influencers/icons to raise capital – a wild thought in relation to regulation but not far out given the influence of stars moving into private equity with actual funds.

AI in Deal Sourcing and Tech Stack: The Upstream Opportunities

When asked about AI in deal sourcing, Danai acknowledged the increasing role of AI in PE and mentioned that her team is actively exploring these possibilities. She teased at the possibilities of upstream opportunities in sourcing deals with AI assistance. She emphasized the need to stay flexible in adapting to evolving technologies. Danai provided insights into the intricacies of incorporating AI into deal sourcing:

  1. Exploring Upstream Opportunities: Her team, led by head of investments Frederic Huynen, is exploring the potential of AI in upstream deal sourcing.
  2. Combination of Buying, Building, and Customizing: The approach involves a combination of buying, building, and customizing tools at different stages of the investment process.

Rethinking Metrics of Success in Impact Investing: Equitable Access as an Indicator

On the topic of impact investing, Danai clarified that impact investing should be included as a traditional asset class and more widely applied across asset classes. She expressed the need to refine the lens of impact investing, exploring metrics like External Rate of Returns (ERR) and considering equitable access as a vital indicator of success. Danai expanded on the future metrics of success in impact investing:

  1. Inclusion as a Traditional Asset Class: Impact investing should be included as a traditional asset class, reflecting its growing significance.
  2. Refining the Lens: There’s an opportunity to refine the lens of impact investing, encompassing considerations and skills beyond traditional metrics.
  3. Wider Considerations for Success: Metrics like ERR, with wider considerations reflecting the needs of society today.
  4. Equitable Access: Equitable access as a potential indicator of success, measuring the breadth of access to private equity opportunities.

Tech and Analytics Stack: Embracing the Future

Regarding her team’s tech and analytics stack, Danai mentioned a versatile approach, utilizing a combination of buying, building, and customizing tools at different stages of the investment process. She agreed with the idea that the future belongs to crossover specialists between tech and investing, and she positioned her team as well-prepared to navigate this intersection. Danai shared insights into their tech and analytics approach:

  1. Versatile Approach: Utilizing a versatile approach with a combination of buying, building, and customizing tools.
  2. Collaboration with External Consultants: Embracing external consultants for specialized needs while maintaining an internal team for dedicated focus on unique requirements.
  3. Convergence of Tech and Investing: Acknowledging the shift toward crossover specialists between tech and investing, recognizing the importance of navigating this intersection.

Outlook for 2024: Navigating Peaks and Valleys

In terms of the outlook for 2024, Danai anticipates further consolidation in the market. She predicts more creativity in structures, opportunities for purpose-driven firms, and the entry of more celebrity-type/TikToker investors. According to her, these specialized individuals understand a new generation of investors and consumers, offering new access to private equity that wasn’t there before. Danai provided a comprehensive outlook for 2024:

  1. Market Consolidation: Anticipating further consolidation in the market, potentially leading to the demise or consolidation of many firms.
  2. Creativity in Structures: Expecting more creativity in structures and opportunities to navigate the dynamic period.
  3. Purpose-Driven Firms: Opportunities for purpose-driven firms to shine and make meaningful contributions.
  4. Entry of Celebrity-Type Investors: The entry of more celebrity-type/TikToker investors, bringing specialized understanding of a new generation of investors and consumers.

In conclusion, Danai Musandu emerges as a guiding force in the private equity landscape, navigating the industry’s future with the voice of the new generation. Her insights reflect a deep understanding of the ongoing shifts and a critical commitment to shaping the future of private equity.

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