Natalie Fitch

Natalie Fitch has almost a decade of consulting experience at Hamilton Lane, focusing on the firm’s West Coast-based clientele and their private markets portfolios. Like many others, she’s anticipating a market downturn in the not-too-distant future, given the current point in the economic cycle after a prolonged expansion period, and says it “feels like we may be at or around the later innings of the cycle.”

Her firm’s approach at this point is to strive to capitalize on strong gains in the private markets. One strategy that her clients have shown increasing interest in is venture capital. She says, “Venture Capital is back in vogue. Venture and growth equity returns have been some of the better-performing sectors since the global financial crisis, albeit [they] are less realized than other strategies.” Fitch and her team are looking closely at that part of the market.

“We’re having a lot of conversations about venture capital and growth equity with our clients, as well as co-investments,” she says. “One headline in the co-investment market is that it’s easy and a good place to be, particularly given the fee structure,” she says. According to Hamilton Lane data, however, about 29% of realized buyout deals on average have been written down or written off entirely over the last 20 years.

Fitch explained that while some funds may not lose money overall, capital is more frequently lost on a deal-by-deal basis and exposure to that risk through co-investments can be substantial. “Let’s say you’re making a $25 million commitment into a fund, you may be able to recover from the loss of capital of one portfolio company [through the success of other companies]. If you’re putting that same $25 million commitment into a co-investment, you have the potential to lose some or all of the investment.”

“So there is more risk,” she says, “and we spend a lot of time helping our clients understand this. The reduced fee structure is beneficial to investors, but when it comes down to it, LPs have to be sure they have the resources and staff to diligence, analyze, and execute properly.”

Fitch also applies her co-investment thesis to the private credit asset class. Private credit has grown tremendously since the global financial crisis, although it is still significantly smaller relative to the private equity market.

“The returns on private credit investments vary based on the stage and the risk that you’re taking on. For example, if you’re investing in a first lien loan, you’re going to have a very different return profile than if you’re investing in distressed debt. A huge piece of this has to do with where you’re targeting within the capital structure.”

External influences, such as the dislocation of banks due to regulatory restrictions, have also acted as a catalyst for private credit managers.

Growing Need for Transparency

Another trend Fitch points out is the evolution of data, and LPs’ demand for increased transparency. “The amount of information being requested by investors continues to increase. Investors increasingly want to know what specifically is going on in their portfolios and are interested in portfolio analytics, expenses and fees, lines of credit, and benchmarking, to name a few.”

“The same notion applies on the due diligence side—investors continue to demand more information, Fitch says. “There’s been a huge amount of progress over the past decade, and I would suggest over the next 10 years, there will be transformative progress around the way we use data and technology to construct portfolios and invest in the private markets.”

Fitch and the team at Hamilton Lane place a high value on the need for greater transparency within the private markets, and have positioned themselves to be out in front of that evolution in part through a series of strategic investments in private markets technology leaders. Through these partnerships, the goal is to help clients better understand, track, plan, and report on their private markets portfolios. 

By Steffan Navedo-Perez