Private Equity Basics

Hot off the press is the latest private markets quarterly update from our CIO team. Here’s what we’re seeing right now across asset classes: In #privateequity, we still like value-oriented buyouts, and specifically, managers with strong track records in operational value creation. We also recommend allocations to secondaries, as secondary exit solutions should remain a favored liquidity option and NAV discounts remain in the double digits. We continue to recommend #privatecredit, but selectivity will be key as manager dispersion is far greater here than in public credit. Spreads have tightened as competition has returned to the loan market. But we remain constructive on the sector given yields near 10%, low defaults, declining leverage, and ample covenants. Our outlook for lower growth combined with two Fed cuts in 2H25 is also supportive. In #realestate, a bottoming trend in a majority of CRE values began occurring in late 2024. We believe 2025-30 will be rewarding for investors that can identify and lean into markets benefitting from strong demographics, migratory patterns, and job creation. We believe there are opportunities emerging from properties facing financial distress that are still solid assets – which we’ve often seen in multifamily. Full report below.

Private Thoughts From My Desk ……………. #33 𝐓𝐚𝐫𝐢𝐟𝐟𝐬 & 𝐔𝐧𝐜𝐞𝐫𝐭𝐚𝐢𝐧𝐭𝐲: 𝐖𝐡𝐚𝐭 𝐈𝐭 𝐌𝐞𝐚𝐧𝐬 𝐟𝐨𝐫 𝐏𝐄 𝐑𝐢𝐠𝐡𝐭 𝐍𝐨𝐰 After five years of what I can only describe as "unique disruptions"—a global pandemic, unprecedented inflation, interest rate shocks—we now face yet another: a new wave of tariffs. For private equity, the impact of these policy moves isn’t just about the numbers—it’s about the uncertainty they inject into long-term models. Private equity lives and dies by its ability to predict the future—five years at a time, with leverage. So when policy shifts like these arrive without clear direction or a timeline, deal pipelines stall. It’s not that the tariffs themselves are necessarily fatal—it’s that no one knows what game we’re playing, or how the rules might change again next quarter. We entered 2025 with momentum. Intermediaries were busy, due diligence was in high gear, portfolio companies were readying for exit. But in February, the “T word” started surfacing. Tariffs are just another word for uncertainty—what I call the dreaded “U word” in private equity—and everything slowed. Activity now reflects what we’re hearing every day: it’s hard to make long-term bets when you don’t know what to model in the short term. For LPs, the liquidity crunch is especially acute. Liquidity is at levels we haven’t seen since the Great Recession. Many LPs are rebalancing through secondaries; some are exploring NAV loans and other creative strategies. The ones with dry powder—sovereign wealth funds, select family offices—see dislocation as opportunity. But for most, frustration is mounting. Fundraising is feeling the pinch, see the chart below for buyout fundraising trends. Exit activity is a leading indicator—and right now, that indicator is flashing yellow. Fundraising was always going to be challenged in 2025. Now, recovery may be deferred even further. So what can GPs do? It’s back to basics (again) with portfolio companies: secure the balance sheet, conserve cash, and avoid covenant or financing issues in the near term. There’s also renewed urgency to get EBITDA up—quickly—through pricing, cost reduction, and working capital optimization. Anything that opens the door to a liquidity event in the near term. This is also a time for firms to solidify their long-term strategy. Some are asking whether it’s time to double down on what they do best and exit non-core strategies. Consolidation is no longer theoretical—it’s a daily conversation, especially for firms caught in the increasingly challenging middle market. This isn’t a crisis. But it is a moment of reckoning. In a market defined by scarcer capital, talent, and investment opportunities—not everyone wins. Knowing what you do best, doubling down on it, and charting a clear path forward for your firm are more essential than ever. #privateequity #privatemarkets #privatethoughtsfrommydesk

If we at KKR had a mantra for RE Private Equity investing going forward, it would be ‘Back to the Future.’ The current landscape mirrors the early days of the industry, highlighting both a continuation and acceleration of trends from the past 10-15 years. We are once again in a time of dislocation, where new sources of opportunistic capital are needed to replace debt and core equity capital that has become scarce. The recent Fed tightening and post-pandemic pressures on the Office sector have led to a 22% drop in asset prices since Q1 2022, reminiscent of the 21% decline from 1989-93 and the 36% during the GFC. Also similar to the RTC era is the flight of lower-cost bank leverage and core equity capital. On the equity side, cumulative five-year outflows from open end core funds are now the largest in the history of the industry, as a risk-adverse investor base has become more wary of poor backward-looking performance. We view this flight through a positive lens, as it creates space for Opportunistic equity capital to fill the void, particularly as cap rates have risen, creating the potential for Opportunistic returns from assets with more Core-like risk profiles. Read more about Real Estate Equity and Debt as well as other asset classes at https://go.kkr.com/4dARQqR

In private equity–backed CPG, the clock doesn’t start at Day 1. It starts at Month 36 and counts backwards. I’m seeing this shift more clearly than ever in our recent executive searches: Where companies once hired leaders to scale, build culture, and chase market share… They’re now hiring for a very different outcome, one that’s defined by readiness, optics, and EBITDA storytelling. Today, "exit-ready" is the new "growth-ready." And that change isn’t just about P&L. It’s about who gets hired, why they’re hired, and how their success is measured. In recent deals, think the sale of popchips to Utz Brands, Inc., or Justin’s moving into Hormel Foods’s fold, or how Native scaled to acquisition under Procter & Gamble, the teams behind those exits weren’t just good operators. They were narrative architects. They knew how to clean up financials, simplify org. structures, elevate DTC as an asset, and package the business in a way that made it undeniably acquirable. On paper and in meetings. And that means the hiring brief is changing. Boards aren’t just asking, “Who can drive growth?” They’re asking: → Who can optimize EBITDA without killing momentum? → Who knows how to lead a clean diligence process? → Who understands that valuation is as much perception as performance? It’s a subtle but powerful pivot. If you’re hiring in a portfolio company, you’re not just building for long-term value, you’re building for a liquidity moment. And the leaders who thrive in this world aren’t just visionary, they’re exit-literate. They understand investor psychology. They anticipate what buyers look for. And they know how to make the next 24 months look like the exact story a buyer wants to hear. 💬 Curious? are you seeing this shift on your side? How are you balancing short-term optics with long-term value? #PrivateEquity #FMCGLeadership #ExecutiveSearch #ExitStrategy #CPG #ConsumerGoods #LaurenStiebing #TalentStrategy #PortfolioCompany #LeadershipHiring

3 things every People leader should negotiate before accepting their next offer. At the executive level, negotiating a smart package is about more than getting a market competitive salary. It’s about aligning on a set of terms that incentivize you to drive business success while providing a safety net for you and the company both if things don’t work out. Here are 3 things every People leader should ask about — and how to do so effectively — before accepting their next role. Equity While nothing is ever guaranteed, the right equity package can make you a millionaire overnight. If your company makes it big, you don’t want to be kicking yourself over losing out on a smart equity package. Explore guarantees that protect your equity while incentivizing you to optimize for the company’s success: - Single or Double Trigger Accelerations: To protect your stock if the company gets sold before you finish vesting - Extended Exercise Window: To buy yourself more time to exercise vested options post-departure  - Equity Top Ups: To protect against dilution during funding rounds Bonus Smart bonus plans don’t just focus on the dollar amount awarded, but the structure they’re built around. Consider: - Guarantee language to cover periods of approved leave, especially parental leave - Signing bonus — especially if you’re walking away from a hefty bonus at your current company and/or taking a big risk switching to an earlier stage startup - Annual bonuses tied to business metrics — to round out your total comp package while signaling that you prioritize business success over team-specific metrics Exit Plan Think of it like a prenup. You’re going into this with a confident outlook, but if things don’t work out, you want to have a smart plan in place *before* things get messy — not after — to ensure a smooth and mutually beneficial transition. Ask about: - Guaranteed COBRA coverage - Guaranteed salary payouts  - Guaranteed transition period where you stay on payroll as an advisor or consultant vs an abrupt departure — better for optics and enables smoother handoffs As with all things, the key to effective negotiation is being thoughtful in your framing. You want to come across as business-savvy, not out of touch. It’s the difference between pushing for an unrealistic bonus structure that would put the company financials at risk and pushing for a bonus structure that hinges upon the company’s ARR goals — you only win if the company wins. And remember: These discussions shouldn’t stop at the offer letter. Roles evolve, expectations expand, and company realities change. Smart execs revisit these terms over time. Want to learn more about what to negotiate, how to frame your asks, and what is (and isn’t) realistic depending on company size, stage, and industry? Check out my negotiation cheat sheet below. 👇 #hr #people #compensation

Some private equity firms are hiring placement agents to access new pools of capital. Deal activity and initial public offerings have declined due to higher interest rates and economic uncertainty, which has also impacted institutional investors private asset allocations. Due to a mismatch in asset pricing between buyers and sellers, private equity firms are facing increased challenges in exiting their investments and returning money to their investors, who, in turn, have less cash to invest. For some buyout funds, the tables have turned from “thank you we are fully subscribed” to “are you interested in investing in our fund?” As circumstances change, so do the sources of capital. Private equity firms may not always possess the necessary people, skills, or relationships to establish connections with these new sources of capital. In response to the challenging fundraising environment, certain prominent firms in the private equity industry are enlisting placement agents to access new pools of capital. Placement agents fell out of favour due to easy access to cheap money. However, they have become more common for new funds that are not yet ready to invest in a sales team or have not yet established a brand and track record, as well as some leading funds. According to Bloomberg, some blue-chip private equity funds, including EQT and TPG, have recently engaged placement agents. Where are these placement agents raising funds from? If you guessed the Middle East, you are absolutely right. #privateequity #buyout #investing #investmentbanking #finance

Real estate will never be the same. For a decade, it was a bond substitute. Stable. Predictable. Yield play. Now, it’s become a true opportunistic asset class. The investors who don't adapt will get left behind: 1/ The "fixed-income era" is over: From 2010-2021, real estate behaved like a bond substitute: • Low rates drove cap-rate compression • NOI growth felt automatic • Investors wanted stability, not complexity • Cash flows were predictable, underwriting was straightforward Real estate played the coupon role in portfolios. And everyone got comfortable. The question wasn't "can we create value?" It was "can we find yield?" 2/ Rates broke the model: When rates snapped back, the bond-like assumptions broke with them: • Cap rates didn't re-rate fast enough • NOI slowed or reversed in multiple sectors • Office impairment hit balance sheets • Refi risk spiked • Liquidity evaporated from traditional buyers • Special sits and structured credit took center stage Real estate stopped behaving like fixed income. It started behaving like private equity. The playbook that worked for a decade stopped working overnight. 3/ Real estate is now in the "opportunistic" bucket: Investors are underwriting complexity, not stability: • Distress • Recaps and rescue capital • Pref equity and structured credit • Development with real value creation • Operating-platform plays • OpCo/PropCo strategies • GP stakes and platform roll-ups The buyers showing up today aren't core funds. They're PE, hedge funds, special sits, and family offices who want 12-20%+ IRRs and can execute complexity. Returns now come from active management and structural innovation, not passive income. 4/ What this means for investors and GPs: The next cycle rewards operating excellence: • "Easy yield" is out, value creation is in • Deals need a real business plan, not just cap-rate spread • Winners will underwrite variability, not chase stability • The edge moves from "access to capital" to "ability to execute complexity" GPs who figure this out will raise. The ones who don't will struggle to find capital. The LPs writing checks today aren't looking for yield. They're looking for operators. Real estate isn't competing with bonds anymore. It's competing with special sits, private credit, and opportunistic PE.

Private Markets: Diversified or Just Different? Everyone says the same thing when they allocate to alternatives: “We’re adding diversification.” But are they? Let’s get specific. If you’re adding private equity or venture capital to your portfolio, what are you actually getting? According to the correlation data (Figure 2.1), not as much as you think. Private equity—especially buyout and growth—is highly correlated to public equities and the traditional 60/40 portfolio. In fact, in terms of correlation alone, it sits closer to stocks than many realize. Same with VC. The earlier the stage, the better the diversification. But once you hit expansion or late-stage, the numbers start to converge with public markets. So what’s the implication? It means a lot of investors are building portfolios that look diversified on the surface—but under stress, they start to move together. That’s not protection. That’s correlation risk hidden behind complexity. Now let’s flip it. Real assets—especially infrastructure equity, core real estate, and natural resources—show low or even negative correlation to public benchmarks. They’re not just different in label; they behave differently. Especially in down markets. If you want diversification that shows up when it matters, that’s where you look. But that’s not what most portfolios are doing. They’re overweight private equity. Overexposed to the same earnings base across strategies. And under-allocated to the real diversifiers. That’s not an optimization issue. That’s a definition problem. Because diversification isn’t just about holding more funds. It’s about holding the right mix of risk drivers. It’s about understanding correlation across regimes—not just in the averages. So next time you adjust your private markets allocation, don’t ask: “How much is in alternatives?” Ask: “Do these assets really behave differently when it counts?” If they don’t, you’re not diversified. You’re just allocating noise. For more see our Nomura CIO Corner: https://lnkd.in/e4TCax_g #PrivateMarkets #Diversification #AssetAllocation #PortfolioRisk #CIOInsights

In my experience across private equity and venture capital, I’ve come to value what I call ‘light footprint management’. This is a model grounded in lean structures, tactical execution, and deep alignment with partners. It’s a response to the reality of our time where volatility is constant, and agility is no longer optional. This is how it works: * Lean structures: Small, high-functioning teams that move fast and cut through red tape. * Equal footing: No top-down control; instead, a model built on trust, shared ownership, and aligned incentives. 🤝 * Collaborative capital: We raise and deploy capital alongside partners, not gatekeepers - seeking co-investors who bring insight, not just dollars. * Tactical execution: Strategy is a compass, not a cage. We focus on decision velocity, not bureaucratic approval loops. 🧭 * ⁠Precision governance: We stay hands-on when it matters but always with a light touch and a bias toward operator autonomy. * Full use of technology: Including AI to augment the team, reduce volume, and eliminate lower-value activity. It’s about investing alongside others as equals, building trust-based teams, and favoring flexibility over fixed playbooks. This approach allows us to respond faster, stay agile, and adapt to uncertainty without the drag of bureaucracy. In today’s volatile global landscape, this mindset isn’t just efficient - it’s essential for risk-aware, forward-looking capital deployment.

Value creation in a private equity environment revolves around systematically enhancing a portfolio company’s performance to achieve strong returns at exit. In my recent role as Go-to-Market Advisor for a cutting-edge AI-led health tech startup in the UK at Series B, I developed a comprehensive commercial strategy that rapidly boosted recurring revenue by 30% within 12 months. A key breakthrough emerged when we discovered extended integration timelines were deterring smaller clinics and hospital networks from adopting our solution. By designing a flexible onboarding framework, we reduced implementation time by 40% and reinvested these savings into predictive analytics features—enabling clinicians to forecast patient needs and administrators to allocate resources more effectively. Here’s a concise six-step roadmap for delivering tangible results: 1. Due Diligence: Pinpoint growth levers and operational bottlenecks pre-acquisition. 2. 100-Day Plan: Establish quick wins—revamp pricing structures, refine workflows, and optimise early partnerships. 3. Organisational Excellence: Assess leadership, align incentives with performance outcomes, and foster a culture of continuous improvement. 4. Accelerated Growth: Perfect go-to-market strategies, drive product innovation, and explore targeted acquisitions or strategic alliances. 5. Ongoing Optimisation: Monitor KPIs rigorously, remain agile, and leverage real-time data insights to pivot swiftly. 6. Exit Preparation: Ensure robust financial reporting, demonstrate sustained operational gains, and plan a smooth transition for new owners. Throughout each phase, transparency and collaboration are vital. Regular, data-driven updates to board members, management teams, and front-line staff help secure buy-in and maintain accountability. Ultimately, true value creation goes beyond financial engineering. It’s about generating sustainable growth, driving innovation, strengthening the organisation’s culture, and positioning the business for long-term success. By following a deliberate plan and staying laser-focused on top-line expansion and bottom-line efficiency, we set the stage for a transformative exit that benefits stakeholders and the broader healthcare ecosystem alike.